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Paul Millman is the co-founder of Chroma Technology Corp. in Rockingham which is an employee-owned company.
Photo: Albert J. Marro / Staff Photo

Vermont embraces employee-owned companies

For Paul Millman, it was a political and moral choice.

So when Millman co-founded Chroma Technology 20 years ago he gave employees a financial stake in the company, making them owners from the first day in business.

Millman calls it “venture socialism.”

“I think that the way in which we reward capital … is an incomplete economic model,” said Millman, whose Bellows Falls biotechnology company makes optical filters.

Since employees create wealth, they should be rewarded accordingly, he said.

Others share that view.

Chroma Technology is one of an estimated 40 employee-owned companies in the state; many of them are ESOPs, or employee stock ownership plans, according to the Vermont Employee Ownership Center. Employee-owned companies include Gardener’s Supply, Carris Reels, Vermont Aerospace Manufacturing and Trust Company of Vermont.

Some are 100 percent employee-owned, others are partially owned by employees. Most also have a level of employee involvement in running the company.

In the case of Chroma Technology, the company is in the process of transitioning from a broad-based stock option program to an ESOP. The company has 100 employees, of which 80 are vested as owners.

Don Jamison, program director of the Vermont Employee Ownership Center (, said there are advantages to employee-owned companies, not the least of which is increased productivity. Jamison said workers actually make decisions how their company operates. He said there are also tax advantages for an owner who makes the transition to an employee-owned company.

The National Employee Ownership Center lists several types of stock-based employee-owned companies, including the two most common forms:

ESOP, or employee stock ownership plan, provides a tax-qualified employee benefit in which most or all of the assets of the company are invested in the company’s stock.

The company contributes its own shares to the plan, contributes cash to buy its own stock, or most often borrows money to buy stock, with the company repaying the loan. There are significant tax benefits for the company, employees, and the owner who is selling the company. Employees are vested over time and receive their benefits when they leave the company.

Stock option plans allow employees to buy company stock at a set price during a specified period once the option has vested. For example, if an employee receives an option on 100 shares at $10 and the stock price goes up to $20, the employee can “exercise” the option and buy those 100 shares at $10 each and can sell those shares on the market for $20 each, pocketing the difference. If the stock price never rises above the option price, the employee won’t exercise the option.

There are also company 401(k) plans that invest primarily in the company’s stock and worker cooperatives. The latter are by law 100-percent owned by employees with each worker allowed one vote no matter how many shares a worker may own.

A new Vermont ESOP is Vermont Aerospace in Lyndonville, a 30-year-old defense contractor that employs 225 workers and counts among its clients General Dynamics and GE Aviation.

Owners Donald and Sheryl Cota established an ESOP late last year.

“Rather than selling it outright to someone else, they wanted to reward the employees that were here,” said Jeremy Ely, operations manager at Vermont Aerospace. “The company has been in business for 30 years; there’s employees that have been here since the beginning.”

Asked about a downside to an employee-owned company, Millman said: “Yeah, we make decisions more slowly ... and people ask more questions.”

“In our company, some people think they have something to say about things they don’t know about,” he said, “and that can be both humorous and a problem.”

He said employee-owners are also more frugal than a typical CEO-run firm. But Millman added: “By and large, the positives outweigh the negatives by a lot.”

ESOPs are also time consuming and expensive to set up and maintain. But the cost isn’t that much greater than the fees associated with selling a company on the open market, said Lauren Rogers of the National Center for Employee Ownership.

Although the just completed fiscal year totals are still being tabulated, Millman said company revenue increased 25 percent during the fiscal year that ended in April to a record $24 million.

At one time, Chroma’s major business was supplying filters for microscopes. Microscopes remain a major source of business but other biotech instruments such as sequential systems that help decipher DNA are generating more sales.

According to the ESOP Association, there are 11,500 ESOPs in the country covering 10 million employees with assets of $901 billion (at the end of 2007). Approximately 3,000 ESOPs are 100 percent employee owned.

Citing “Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing,” the ESOP Association, said the study concluded employee morale and productivity are greater at companies with employee stock ownership plans than at non ESOPs.

The National Center for Employee Ownership came to the same conclusion and found that ESOPs and broad-based stock option plans (most employees receive the awards) also create more wealth for employees:

“ESOP participants have about three times the retirement assets of comparable employees in comparable companies, and about the same amount of diversified retirement assets. They also make about 5 percent to 11 percent more per year in base pay. Participants in option plans and other broad equity plans almost never give up other benefits for the awards, so they are, by definition, “gravy.”

When it comes to stock purchase plans (which many publicly traded companies offer employees), the NCEO found that research is lacking and that there is no reason “to predict an impact on corporate performance because both the rate of employee involvement in these plans and the amount they put aside is relatively low.”

Rogers of the National Center for Employee Ownership said a major factor in the creation of ESOPs is demographics.

“People who own businesses that are getting to the point where they’re either wanting to retire or planning their retirement so that drives them to sell to their employees,” Rogers said. “Tax benefits are a big part of it but a lot of the people I talk to it’s equally important to preserve the company, not sell to a competitor or a holding company or somebody that they think may kill all these jobs or move them to Mexico.”

Jamison of the Vermont Employee Ownership Center said Vermont per-capita has more employee-owned companies than just about any other state. “I think partly because there’s so many small businesses,” Jamison said. “There are a lot of business owners who are very concerned about what’s going to happen to their employees after they retire. So I think that does lend itself to considering the sale to employees.”

Ely of Vermont Aerospace added that making the company employee owned ensures “that the jobs all stay in Vermont as well.”

The annual Vermont Employee Ownership Conference will be held June 10, at Champlain College, Burlington. For more information or to register, visit

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