Formalizing Our Employee Ownership Value
By Nathan A. Ulery
Even during our humble beginnings in 2002, West Monroe Partners was focused on building the next generation of leaders – and sharing the financial rewards of building a business with our employees who made it all possible. As the antithesis of a “churn and burn” consultancy, we sprang from a desire to create a place where people could build long-term careers and participate in the equity they help build. 100% Employee Owned was a value from day-one and during our first ten years, we exemplified this core value through a unique Earnings and Appreciation Sharing Plan, which allowed every employee to participate in the year-end distribution of profits and to build an “equity” stake through the increase in our book value.
At the 10-year mark, we had grown to over 300 employees and $60 million in annual revenues, but our Earnings and Appreciation Sharing Plan was not delivering the anticipated reward as the book value of a non-capital intensive professional services firm was not robust enough to reward or retain our people. We also knew that our founder’s retirement was looming in the next few years and we likely would need a capital infusion in order to buy out his portion of the Earnings and Appreciation Sharing Plan.
Our Board of Directors set out to explore alternative ownership structures for our next phase of growth. Before we began, we set out our core set of principles we would use to decide which included:
• Foster and deepen our “employee-owned” culture
• Remain independent and employee-operated
• Allow employees to realize the market value of their ownership in WMP
• Raise capital to support an acquisitive growth plan
• Gain tax efficiency and transition to a favorable tax structure
After evaluating a partnership model, leveraged recap, sale of the company and an IPO, we decided that an Employee Stock Ownership Plan would be the right structure for our firm and in 2012 we converted to a 100% S-Corp Employee Stock Ownership Plan (S ESOP).
The transition to S ESOP status gives all employees market-based ownership in the firm and helps them continue to plan for a comfortable future based on their tenure and retention at West Monroe. Under our S ESOP framework, employees don’t purchase shares or invest their own money—as long as they remain employed at the firm, they’ll receive a share allocation each year. And as we continue to successfully execute on our strategy year over year, the value of every share increases. This transaction amplifies our commitment to remaining 100-percent employee owned.
Through the use of stock appreciation rights, the S ESOP also provides us cash to use for acquisitions and we have successfully acquired three firms since we converted. More importantly, the transparency of S ESOP ownership has deepened our employee ownership culture – creating an environment that has allowed us to grow to almost 800 employees and approximately $150 million in revenue in 2016.
For our people, the bottom line is that our S-ESOP creates wealth and retirement security for our employees and, unlike other consulting firms’ models, no one has to buy in and all eligible employees can participate. We want our people to stay here for a long time, and we believe this structure is a true differentiator for those who want to build a long-term career with us.
About West Monroe Partners
West Monroe is a progressive business and technology consulting firm that partners with dynamic organizations to reimagine, build, and operate their businesses at peak performance. Our team of more than 800 professionals is comprised of an uncommon blend of business consultants and deep technical experts. This unique combination of expertise enables us to design, develop, implement, and run strategic business and technology solutions that yield a dramatic commercial impact on our clients’ profitability and performance.
About the Author
Nathan A. Ulery is a managing director and leader of Performance Services at West Monroe Partners. For almost twenty years, Nate has teamed with clients across a wide range of industries to integrate their business and information needs with technology solutions that focus on reliability, availability, security, performance, and cost effectiveness. Nate joined West Monroe Partners in its first six months of operations and is a member of its Board of Directors. Nate is passionate about employee ownership – meeting with anyone from college students to members of Congress to discuss its benefits for an individual company, its employee-owners, and the US economy.