OWOSSO — Local internet accountability company Covenant Eyes is implementing a new and relatively rare strategy its owner says will generate wealth for employees while preserving the firm’s mission into the future.
Covenant Eyes, located at 1525 W. King St., is launching an employee stock ownership plan (ESOP) — a retirement plan that provides employees with stocks in the company, holding them in retirement accounts.
With an ESOP, when the stock value increases or decreases, so does the value of employees’ accounts. That’s good news for current Covenant Eyes employees: The company’s annual growth rate is 20 percent. For the ninth year, Inc. magazine has named Covenant Eyes to the “Inc. 5000” list of fastest-growing companies.
“I have three main reasons for doing this,” said Covenant Eyes founder and CEO Ron DeHaas, who owns 85 percent of the company. “We have a culture of loyalty to the mission in this company I want to preserve here in Owosso, beyond my existence.
“Second, it provides a succession plan for me without disrupting the cash flow,” he said. Finally: “Employee ownership has become an engagement vehicle for recruiting and retaining employees because they can see their investment building.”
An ESOP is similar in some ways to a 401(k), but there are differences. For example, the retirement plan requires no out-of-pocket contribution from the employee-owners. They tend to enjoy greater job stability as a result of the ESOP: Statistics show that those who work at companies with employee stock ownership are 7.3 times less likely to be laid off than those who work at conventionally owned companies.
DeHaas estimated the coming value of the plan for each of his 190 employees at $165,000 — “that’s 2 1/2 times what they’d earn in a 401(k).”
He said he has not yet sold any stock to ESOP, but that a trust has been created and an independent trustee named. In addition, Covenant Eyes has made a significant cash contribution to the trust. DeHaas said he expects stock to be sold in about 1 1/2 years.
There are 6,717 ESOPs in the U.S., most located in the Midwest. In Michigan alone, there are 212 ESOPs. Covenant Eyes media specialist Katie Cole said she’s glad the company she works for switched to an ESOP plan.
“I’ve been with the company a long time. Covenant Eyes has always taken care of their employees but this gives us a little more,” Cole said. “It’s just another reason why Ron is smart with business. I’m really appreciative of the ESOP program.”
DeHaas said: “We care for our employees and they care for our subscribers, and our subscribers know it.”
Benefits also accrue to Covenant Eyes and shareholders. Shareholders may be able to delay or eliminate capital gains taxes incurred from selling stock to an ESOP. Majority shareholders such as DeHaas can exit the company — or remain employed — on their timeline.
DeHaas can also keep the culture of the company he founded, rather than sell it to another company that could tear it down or move it to another city or state.
“This keeps Covenant Eyes in this community,” DeHaas said. “The company has contributed $100 million to the Owosso economy. That’s why Owosso has nice coffee shops and stores and restaurants. That’s why it’s a nice place to live.
“I live here,” he added. “I want to be able to walk down the street and hold my head high.”
Companies may be able to avoid paying federal and even state income tax on the portion of the business owned by the ESOP. They may also be able to take a tax deduction on dividends paid on ESOP stock.
Wisconsin-based ESOP Partners LLC is handling the ESOP process for Covenant Eyes.
“Covenant Eyes is the perfect candidate for an employee stock ownership plan,” Jason Wellman, senior relationship consultant for ESOP Partners LLC. “The culture that exists within the organization is in alignment with employee ownership concepts and should provide an excellent benefit for their employee-owners.”
Covenant Eyes, founded about 20 years ago, provides accountability reports and conversation to people who want to maintain their integrity with regard to online pornography.
The company pioneered Internet and Screen Accountability software that has generated more than 100 million reports.
According to the company’s website, “Covenant Eyes is the most significant corporate force in cultural recognition of the public health crisis of pornography and sex trafficking.”
DeHaas has bachelor’s and master’s degrees from Ohio State University, and is a doctoral candidate at the University of Michigan.
He lost his family in a car accident in 1992, and since then has been developing resources for the protection and betterment of families, the website states.