newspaper become employee-owned upon the retirement of its owners. In 1974, Congress passed legislation that provided tax and Social Security Advantages
to support ESOP transactions, but the concept gained
traction slowly. The recent transfer of wealth from
retiring baby boomers has brought it into the forefront
of modern business planning.
ESOP Can Be Complex
Abello says that she “just kind of fell into it. I was
looking to get into corporate finance after being in the
tax department at Arthur Young, and the firm that gave
me an opportunity to get involved was heavy into ESOP
and doing valuation work. I had the tax background that
they needed to understand these ESOPs and they had
the corporate finance background that I needed.” Abello
went on to spend half her career in ESOP divisions,
including a stint at JPMorgan Chase.
At Wells, she says, “Our ESOP practice is prob-
ably a little different than some of my prior positions
in that we team up with our local bankers to bring the
ESOP expertise to each of our commercial banking
offices nationally. So, we are part of the banking team
when we’re looking to bank with ESOP companies.
It is a little bit of a different role, and it is definitely
a dedicated ESOP practice. There are four dedicated
ESOP professionals that cover the U.S., and we also
partner across many other business lines. So we work
with Wells Fargo wealth management, equipment
finance, we even work with the investment bank capital
finance…anybody inside of Wells Fargo. We have a
very collaborative culture.”
Marchetti worked with Abello and some other banks
that assisted with the financing and setup of the ESOP
for Urschel. It is, he explains, a complex transaction.
as a recruiting tool. New employees realize they will be
company owners. It also provides an incentive to work
harder — the more the company earns, the more the
employees’ shares are worth. At the end of the year,
shares are redistributed back on the company’s profits.
Employees who leave or retire are required to sell their
shares back to the trust.
One difference at Urschel is the family is not walking
into the sunset, although many business owners do take
that opportunity after an ESOP.
Tax Advantages for Company
There are advantages for the company, too, Marchetti
points out. To qualify for the ESOP, Urschel had to
change from being a C-Corporation to become a
S-Corporation. For an S-Corp, the taxability of the
company falls to the ESOP trust, which, like a 401K, is
not taxable by the government.
“So literally what you’ve done is taken a company
that was a C-Corp at a 35% tax rate, and now it’s taxed
at 0% through the trust,” Marchetti says.
Economist Louis Kelso is credited with developing
the first ESOP in 1956 when he helped a privately held
“The employees don’t typically pay for the stock out of their own pockets. The stock is paid for by leveraging the company’s balance
sheet. So we work with the company to determine their debt
capacity in order to lend to the company. That is our primary role.”