The financial implications of ESOPs
One evening about 20 years ago, Rick and Mary Jurmain were watching a PBS program that depicted how some high-schools students were learning about the responsibility of caring for a baby by bringing home a sack of flour and an egg for the weekend. The idea was that ensuring that the egg didn’t break and the bag didn’t get ripped simulated how gently a baby must be handled.
The Jurmains had small children of their own at the time, and Rick wasn’t buying it. That’s a stupid way to learn about caring for a baby, he told his wife. She replied, oh yeah? Do you have a better idea? As it happened, Rick was a rocket scientist — really — who was between jobs after doing some contract work for NASA. So he headed to the garage to tinker. Eventually he designed and built a simulator in the shape of a real baby with electronics inside that allowed it to “eat,” cry and need changing. Before long, the Jurmains founded a new company, Realityworks, to sell the product to schools.
The company is still in business and growing today, having launched other types of experiential-learning simulators for use in technical education programs. A couple of years ago the Jurmains decided they wanted to sell part of Realityworks so as to diversify their investments, and after some investigation decided to create an employee stock ownership plan to accomplish that purpose while rewarding their employees.
In the accompanying video, Realityworks CFO Mary Stenvig describes how she had to educate herself from scratch on how ESOPs worked, the financial implications of the move and the company’s lobbying efforts aimed at preserving tax-advantaged treatment for the employee-ownership vehicles.