The following article was published Nov/Dec 2008 on NCEO.ORG

The National Center for Employee Ownership

ESOP Case Study

Flinchbaugh Engineering

Some companies measure the size of their work forces in full-time equivalents, but Mike Deppen of Flinchbaugh Engineering has been tracking a different number: "as a company, we have lost 730 pounds over a six month period," he says, attributing the weight loss to the company’s new wellness program.

Deppen points out that the program benefits Flinchbaugh’s bottom line since the company is self-insured–and as an ESOP company with an innovative profit-sharing plan, all employee owners share those benefits

Flinchbaugh Engineering, Inc., (FEI) is a contract manufacturing company based in York, Pa., a small town with a big concentration of innovative ESOP companies.In the eighth year of its ESOP, the company employs 260 people, two-thirds of whom are ESOP participants. FEI’s clients move entire manufacturing lines into FEI’s facilities where employee-owners maintain and operate the equipment using the clients’ processes. This business model, which the company calls "strategic cell migration," has resulted in increasing sales (up 150% since 2000) and share value (up 184% since 2001).

Self-Insurance and Employee Ownership

FEI became self-insured in 2007, making the company responsible for 100% of all claims. At the same time, the company adopted its wellness program. An onsite wellness coach has met one-on-one with every FEI employee and helped create classes in exercise training, tobacco cessation, nutrition, and weight management. The company has also started health risk assessments that include blood work, body-mass index, and nutrition and health-related habits.FEI will not see the results of the assessments, but employees and their doctors will.

The company’s wellness coach says that the FEI work force has accomplished more in six months than most do in 18. Why is that? CEO Mike Lehman gives credit to the ownership culture. "People know that the company is doing this because we care." Lehman emphasizes the ownership culture when he talks about his role as CEO ("I work for you") and in his hands-on, up-close style. He worked his way up through the ranks and he meets with all new employees on their first day of work.

FEI makes it easy for people to track progress: every month, people see how much the company saved through self-insuring. People know that containing health care costs is a continuing benefit that the company can credibly factor in to the projections it gives its ESOP appraiser.Like many ESOP issues, the relationship between health costs and valuation is not simple. To maximize the credibility and understanding of the ESOP as a part of the company’s strategy, CEO Lehman meets with small groups of employees when account statements are released.

Ultimately, says Lehman, the benefits of the wellness program are impossible to quantify. "I know that if we took the money we’re investing in the wellness program and put it into new equipment, we’d make more money. We’re not doing the wellness program to maximize profit, but I hear people telling me that the program makes them happier, more appreciative, and more in control of their lives. And those are my shareholders talking."

Sharing Profits

Profit may not be the primary driving force behind the wellness program, but all the employees do see the benefit in the profit sharing plan. FEI puts a percentage of profits,starting from the first dollar, into its profit sharing pool. One half of the pool is allocated to employees based on seniority points.

The other half of the pool is allocated proportionally to compensation, with adjustments for each employee’s performance review. That number is adjusted again for the number of Kaizen process improvement suggestions each employee submits and has approved with additional incentives for employees who submit six or more.

Kaizen

FEI’s incentive program supports Kaizen suggestions because those employee ideas are the heart of an intensive company effort to engage everyone in making the company as strong as it can be. The Kaizen committee meets every two weeks to review suggestions, welcoming ideas for major process improvements and simpler "ah-ha" suggestions, such as moving the company’s mailbox. The committee implements the ideas and publishes them. "We encourage people to steal Kaizen ideas," says Mike Deppen. "If something worked in one department,let’s adapt it in the others.

FEI also works on frequent "Kaizen blitz" projects. The company is currently reviewing everything the human resources department does, with plans to change its philosophy (instead of waiting for you to come to HR, HR will come to you and make sure you’re getting as much as possible out of the company’s plans).

In 2007, the company had 508 Kaizen suggestions submitted by all but 10% of its work force–that’s 2.9 suggestions per employee. A new position, manager of continuous improvement, will strengthen the suggestion process and help FEI reach its 2014 destination statement,which includes increasing sales to $100 million, maintaining its values of dignity and respect, and, not surprisingly, continuous improvement. That will keep the company, and the employees, healthy for the foreseeable future.

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