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Why a Franchising Veteran Launched an Employee Stock Plan

Kelly Saxton has spent over 30 years running restaurant franchises, and one thing he's learned is that good employees are crucial to success and should be rewarded.
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Kelly Saxton doesn't really know what it's like to be an employee. For his entire adult life he has owned and run restaurant franchises. But that doesn't mean he doesn't appreciate the grunt work--over his 30-plus years in franchising he has mopped floors, worked a register and taken out the garbage. What that has taught him, and what has been reinforced multiple times, is that good employees are crucial to success.

"Our No. 1 asset is our employees," says Saxton, whose Saxton Group owns 50 McAlister's Delis throughout Texas, Oklahoma, Kansas and Missouri, and four Pinkberry locations in Texas.

That's why in January Saxton transferred 100 percent ownership of his company to eligible employees through an employee stock ownership plan (ESOP). About 600 of the 2,300 on his staff have participated. Now the longer they work at the Saxton Group, the more they are invested in the company. When they leave, they can transfer the value of the shares to another qualified investment plan; when they retire, they can cash in the equity they've built up, which can be substantial.

For Saxton the ESOP is a way to reward the people who make his business successful, and a way to keep them motivated. "Our employees have helped me accomplish my goals. In the past this has been my company," he says. "Now I like to announce that this is our company."

We grabbed a club sandwich and sat down with Saxton to find out how and why he partnered with his employees.

Why did you set up an ESOP?
I started looking into it, and the first thing I asked is why would you not want to do this? I could find only two reasons--you don't like or don't want to do anything for your employees, or you don't like complication. The best part of our business is our employees, so learning about the ESOP got us very excited.

I feel like in the restaurant business, it's all about hospitality. In my mind that's different from service or experience. When customers come in, we want them to feel like they're coming home. It's very much an employee-driven program, and employee ownership helps emphasize that feeling of hospitality.

How did you explain it to your employees?
The ESOP is a long-term retirement program for the benefit of employees. They have to buy the company, and over time ownership is transferred to each individual employee who participates. From an employee perspective, whatever you were doing yesterday, you're now doing that for yourself.

That's what they understand in the long term. In the short term, we need to explain to them that if they throw away this opportunity or don't take care of the customer, that impacts the business and them as owners.

I think you hear people talk about ownership, but they don't really understand what ownership means. It means doing whatever it takes to be successful, and creating an environment that allows us to be successful. We've done a lot of employee education, and we've had an online video explaining it to them.

Do ESOPs have a record of improving performance?
I talked to one guy with a business in the nursing field. He said he had to talk about it all the time before people really understood. Some people didn't find a tangible benefit until they got a check in their hand. They told him, "I heard you talk about it, but I didn't think it was going to be meaningful." You can't overcommunicate to people about this. I try to emphasize that we're all in this together, and all getting the benefits of ownership.

Is this something you've thought about for a long time?
Ten years ago I wouldn't have thought about it, but I think it fits my personality. Previously I had a franchise pizza company, and I didn't create an ESOP, but I sold it to my senior-management team. My thought process was, How do I share ownership? So it wasn't a stretch that I'd do something like this.