Episode 3: ESOPs as a Retention Strategy

Paul Grove (00:00):

Our assets are our people and our people have legs, they can move to other employers very easily, other competitors.

Justin Browder (00:07):

Yeah, I think it’s a virtuous cycle, right? I think that ESOP concretely states that we believe that every individual that works for AXIA is important. No matter what we can say in any meeting, we can’t match the fact that your account goes up when AXIA grows.

Speaker 3 (00:23):

From Lazear Capital, this is the ESOP Insider. In this four part podcast, we will take you through all you need to know about selling your company through an employee stock ownership plan, or ESOPs as they’re commonly known. Now, this is episode three and we highly recommend listening to the previous two episodes before diving into this one. In episode one, we gave you a crash course on ESOPs with Ted Lape, an industry-leading expert when it comes to ESOPs. And in episode two we sat down with ASI Roofing to talk about their ESOP journey. Today though, we are talking with AXIA Consulting.


Now, the goal of the show was always to demonstrate the broad application of ESOPs in all walks of companies. And as you heard up top, in AXIA’s case their most important asset is their people. And so, their ESOP deal had to address that need, specifically as it retains to recruiting and retaining employees. Moreover, it’s worth noting that unlike other ESOPs we’ve talked about on the show, AXIA’s ESOP was not really about an owner wanting to depart the business, but rather AXIA saw an ESOP as a growth vehicle. So, without giving any more away, let’s dive in.

Paul Grove (01:32):

My first job out of college was with one of the big consulting firms.

Speaker 3 (01:36):

Meet Paul Grove, founder of AXIA Consulting.

Paul Grove (01:40):

I was there for seven years, left as a manager, and I joined a startup of ex-big consultants from our firm. And that was really great because they took the best of the culture from the first company, and had great clients, doing great work. That company got absorbed into… They got purchased by a large publicly held company. And they were in managed services, they were not in consulting. So, there was a culture mismatch. That’s when I decided to leave, and that was the genesis for AXIA. My vision was to build something, great consultants doing great work for great clients.

Speaker 3 (02:20):

Paul, tell me about those early days at AXIA. What was day one like?

Paul Grove (02:24):

Day one was finding a role at a client, where I could go and bill. Early on… Yeah, the cash flow was a big important aspect, clients, recruiting… It’s the same components that we’re focused on here every day, but it was just, when it’s two people, everything is magnified.

Justin Browder (02:48):

I accidentally got introduced to AXIA in 2007, I was pretty much-

Speaker 3 (02:53):

And meet Justin Browder, current CEO of AXIA Consulting. Paul, do you remember Justin’s first interview?

Paul Grove (03:00):

I do, I met Justin at Starbucks, and he wore a suit. And I was, at the time my client was the Gap, and I was in jeans.

Justin Browder (03:10):

Yeah, it started with a suit in Starbucks in 2007.

Paul Grove (03:14):

And the boss of the month club or something, you got me a boss of the year card.

Justin Browder (03:19):

I got him a greeting card for boss’s day, two weeks in, and he said, what are you doing, I’m not your boss? I was like, oh, okay.

Paul Grove (03:26):

Justin was ready to go. Justin was actually one of the first employees of AXIA that was not an equity owner of AXIA. So, he was guaranteed a paycheck, whereas the rest of the owners were not guaranteed a paycheck.

Justin Browder (03:40):

When I joined in 2007, the message was we want to grow one great consultant at a time. So, it was interest in growth, but not for the sake of it, it was let’s grow the right way by finding the next great person, and that’s going to have good outcomes.

Speaker 3 (03:55):

Paul, do you remember the first time you would’ve been introduced to the concept of an ESOP?

Paul Grove (04:00):

I do, it was actually at a Lazear seminar they were putting on with a local law firm, here in Columbus. And at that point in time, we were looking at all different alternatives to share ownership broadly, amongst all employees, not just the equity owners. And we looked at [inaudible 00:04:23] stock, income shares, stock options, and we heard about ESOPs at this seminar, and it was intriguing, and then all of a sudden ESOPs started popping up all over the place in our lives. And so, we investigated further and ended up going down that path.

Speaker 3 (04:44):

So, Paul, then, outside of just hearing about ESOPs within your community, what was the catalyst to do one or why was that important to you?

Paul Grove (04:55):

Well, so this is actually a great question because the firm that I worked for that ended up getting bought by the large publicly traded company, there was one guy that owned that firm that he walked away with a bag of cash, and no one else did. And we were looking to protect ourselves and our employees from that event happening at AXIA. So, that’s why we’re looking for a mechanism to share ownership broadly because it really, really fits well in our industry. We’re looking to attract the best people, and incent them with some sort of ownership stake.

Justin Browder (05:35):

From the time I started to the time I heard about the ESOP, the conversation about AXIA was always, this is going to be a generational long-lasting business. That was in my first interview, when I showed up in a suit. I heard the intent for this was to be around for a really long time. Part of that, now looking with hindsight and hearing Paul’s story, was a reaction to their experiences prior to that. But that was the goal. And so, when I first started hearing about the ESOP, hearing about why we were going that direction, a lot of it was that. How can we create a company that can be sustaining for a long time?

Speaker 3 (06:16):

Paul, can you tell me a little bit about what you remember about actually getting the ESOP done, and going through that process?

Paul Grove (06:23):

Yeah, well, Lazear put together a model of what a transaction could look like, and drilled it down by person. So, that’s what we were able to help everybody understand what the ESOP could mean to them, short-term and then long-term, with being able to share broadly ownership across the company. I would say that the Lazear model that was put together for us came to reality, almost to a dime. We did narrow our choice down to Lazear and another firm, and it really came down to the fact that Lazear… We decided to commit to an ESOP in October of 2014, Lazear said they could get the deal done by the end of the year, and get all the bank financing done. Which happened. They along the way introduced us to all of our advisors, the TPA, trustee, valuation firm, banking… The banking relationship we still have today was introduced through Lazear, which was huge value.

Speaker 3 (07:42):

And so, when did AXIA officially ESOP?

Paul Grove (07:46):

We became an ESOP January 1st, 2014. We rolled it out to the company at our January company meeting. And it was not an exit plan, we actually, we viewed it as a way to share ownership, and in hindsight, it was really more of a transition plan than an exit plan. Today, 10 years later, we still have eight of the 10 shareholders on staff right now, or as part of AXIA, in some sort of leadership position.

Justin Browder (08:14):

Yeah, I think there’s a near-term and a long-term. Near-term growth vehicle is when the ESOP was announced, it is not a coincidence that we had one of our best years, the following year. The excitement that drove to say all these things that we’ve been saying about each individual being part of this company is now concretely true. And I think that was a lot of energy, a lot of people understanding, hey, now I have effectively equity in this, and I have skin in the game, and the growth of this company is important for my individual circumstance. That was a very near term bump that we felt. And I think beyond that near-term, as a growth vehicle, it’s absolutely there. Our ability to do succession planning, to show individuals, that are now in the circumstance I was in 2007, that they now have a wealth building vehicle over the course of their career, if they stay with an ESOP, is powerful.

Speaker 3 (09:17):

Did you find the ESOP to be cost prohibitive or challenging in any way to make happen?

Paul Grove (09:24):

Once we made the decision to move forward with the ESOP, we had the cost identified, it was totally worth the cost to become an ESOP. In terms of annual administration, it’s not overly burdensome, especially considering this tax savings. Well, we haven’t even touched on the tax savings, but the tax savings of being 100% S Corp ESOP is substantial, and it allowed us to pay down the debt over seven years. And now we’re in a position where the debt is paid down, where we’re trying to find uses for the cash that we’re generating.

Justin Browder (10:05):

And all the benefits, monetary and otherwise, have completely made it worthwhile to ride the learning curve of an ESOP.

Speaker 3 (10:18):

So, AXIA’s leadership does their due diligence and structures an ESOP to work as part of their company’s growth strategy. Which, is slightly different from our friends over at ASI, who if you remember, utilized their ESOP more or less to help shepherd an ownership transfer. Now, because AXIA implemented an ESOP so early on in their company’s history, they had plenty of time to reap the benefits of this juggernaut of recruiting and retention tool.

Justin Browder (10:46):

Prior to hearing about the ESOP specifically, there were drumbeats from a group of us that were advancing their career saying, hey, where’s this going? Where’s my career going? Where’s AXIA going? We know that at some point some of these founders are going to retire, what happens then? So we were starting to ask those kind of questions, we’re 10 years into AXIA. The first time then I heard about the ESOP was I think a little bit of a targeted campaign to get small groups of people together to explain this whole thing. So, I remember sitting down with Paul and Ed at dinner, with a couple of other people, and a lot of drawing going on, and explaining how the ESOP functions, and what it means to us, and what it means for AXIA, and effectively answering all those questions that were sitting out there.


One of the attractions in our business is that you become highly marketable through what you’re doing. And so, what we always want to be true is our consultants want to work at AXIA because of the culture, and ESOP answered a lot of that both culturally and from, honestly, a wealth building standpoint. Hey, I’m now at a place where I can accumulate wealth competitively with any other place out there, and enjoy the culture, and grow my career. And be challenged, and all the things that we were already offering.

Paul Grove (12:08):

There may have been a couple of skeptical people that thought that the company was engineering some type of financial situation, but those people now have substantial balances in their ESOP, and now they’re completely bought in.

Justin Browder (12:25):

This sounds like a paid ad, but the conversations a month after the launch were, is this real? What’s the catch? And that’s what was going on at happy hour a month later, it was, what’s the catch with the ESOP, because what we’re hearing seems [inaudible 00:12:42]?

Speaker 3 (12:42):

So, let’s talk numbers. What sort of growth have you seen post-ESOP?

Paul Grove (12:46):

Yeah, so we’ve grown, since becoming an ESOP, we’ve grown an average of 11% a year. Our stock price when we first became an ESOP was, our first stock price was $29 a share. We ended up leaving a lot of working capital in the company, and our most recent stock price is about $200 a share. So, that’s pretty impressive for 10 years.

Justin Browder (13:15):

We actually, yeah, we pulled some of these together, and a few things that have been true since we became an ESOP. I’ll start with a good, I think, objective measure of our culture. We have won best places to work in the last 10 years every year. And that is part of our culture that is absolutely due to the ESOP, and people having skin in the game, and feeling like they have an ownership mindset. We send out an engagement survey every couple of years, and this hot off the presses, 99% of employees strongly agree that they’re proud to work for our firm. So, we’ve done things culturally through the ESOP and otherwise to make that true.


Since then, the more concrete stuff, 92% employee retention rate, and 84% annual client retention rate. Means if we work for somebody in 2021, 84% of the time we worked with them in 2022. That, to me, is counterintuitive when you think about the ESOP, but we’ve been pleasantly surprised when we sit across from our clients, our customers, and say, everybody that you work with is an owner of the company that you’re engaging, they now have trust that the person’s not going to be gone in a month, that they are going to be there for the entirety of that engagement, and that is really powerful, and more than I really expected that has resonated with our clients.

Speaker 3 (14:48):

How does this compare with competitors in your industry?

Justin Browder (14:51):

It blows it away. We’ve talked about the fact that in our industry, in a people business, in the market we’ve been in, which has been a tight labor market over the last few years, it’s difficult to retain people. And we’ve been able to be above industry average, well above industry average, the entire time we’ve been an ESOP.

Speaker 3 (15:12):

And looking at the recruiting side of your business, recruiting talent, that is, how does the ESOP factor into that?

Justin Browder (15:19):

From the moment we announced it, in interviews it came up, hey, we’re in ESOP, and here’s what that means. And I think what we’ve done since has gotten better at speaking to what it means, and better at meeting people where they are. Somebody two years out of school with 30 years left in their career is going to think about an ESOP differently than somebody 30 years in their career with two years left. And so, we’ve tried to find ways to meet them in that spot with their career, and talk about how it’s [inaudible 00:15:53].

Paul Grove (15:52):

Yeah, I think the language that especially the younger recruits can appreciate is the ESOP is a wealth building tool. And it’s just like a 401k, but with an ESOP, you’re automatically enrolled when you meet the eligibility criteria, and you just start earning shares. And that happens regardless of whether you contribute to your 401k or not. You’re part of the plan, you’re an owner. And you gain shares every year, and ideally the stock price is going up.

Justin Browder (16:28):

And when we evaluate through that succession evaluation, when we look at that now, it’s not, this is a great person, but do they have enough money in their bank account to buy a piece of AXIA? You just don’t have to go through all those type of conversations, you just find the right person for the role and you’re able to move on it. That’s because of the ESOP.

Speaker 3 (16:48):

So, you guys have had 10 years now post your ESOP deal, I’d love to talk about today, and looking forward in the future, but first, Justin, I’m curious, how did you step into the role of CEO?

Justin Browder (17:01):

So, my career at AXIA is a story of client delivery. It is, I started as a sidekick to a bunch of project managers, and then managed projects, and then the projects got bigger and I started pitching in more internally as the projects got bigger, and then, I think similar to the leaders that we’ve always had, it made sense at some point to move into a more internal role, just to help. And so, that for me, that initially was taking over our business consulting practice, and I helped there, and then there was a discussion of, with our former CEO, hey, we need to talk about succession, it’s the right thing to evaluate that at every level, which we do. And so, we went through a process, and I stepped into that role in 2022, coming out of that process.

Paul Grove (17:55):

Justin is an example, a great example of why the ESOP was great for AXIA. Because we were able to take the equity discussion off the table of bringing Justin in as an equity owner of AXIA. Now, he’s just part of the ESOP, and we can look at how we can transition from former generation to the new generation of AXIA. And we’re doing secession planning at the executive level, now we push it down to our practice levels, and we’re looking out years down the road.

Speaker 3 (18:34):

And Paul, with Justin taking over this leadership role, where do you see yourself and your future with AXIA?

Paul Grove (18:40):

So, I told myself five years ago that I’d be done at AXIA in five years, and I’m sitting here today, and I think I’ve got another five years to go. I love the company that we collectively have built, and it’s given me the ability to have a little bit of a glide path, I can define my own exit. And so, I think in five years I’ll still be in some way, shape, or form part of AXIA.

Justin Browder (19:14):

And so, to consider that, going back to people joining today, directly because the ESOP, they will for the next five years be sitting and working alongside the founder. Which is pretty rare, right? That’s talking about now 20, 25 years in, that the founder is there, still wants to be involved, and that is at its core because of the ESOP [inaudible 00:19:37].

Paul Grove (19:37):

I come in the morning, I make the coffee, I turn on the lights, and I unload the dishwasher… I do think that that’s all part of stewardship, which is part of our core values.

Speaker 3 (19:51):

Paul, in today’s terms, how prevalent is the ESOP in messaging to your employees, or how often does it get brought up?

Paul Grove (20:00):

Well, yeah, every year in our summer meeting we’ve got a big unveiling of the stock price. And we do it different every single year, but it’s somewhat, the price is right type guessing game. And that’s always a good time, except for the one year that the stock price went down.

Speaker 3 (20:20):

Do you think those conversations are easier to be had with employees when they are a part of an ESOP? Specifically as it pertains to stock prices going down?

Paul Grove (20:31):

Absolutely, yes. We had an unfortunate incident where we lost one of our largest clients, they had a change in leadership in the company and decided to cancel all capital projects. Everyone in the company understood what happened, and we navigated the storm, we did so without having to let people go, the ESOP allowed us to do that, because everyone was in the seat of ownership at the point, and appreciated what we were going through, and felt part of the process, if you will.

Justin Browder (21:05):

We have… I think two other things I would add to that. One is, even when the stock goes up, we’ll caveat it, and say, hey, here’s why, here were the drivers. And so, it’s a pretty natural conversation to say, hey, those drivers can cause things to go up or down. And the other thing that we benefit from, and this is all the way back to the launch, is we have highly educated people, who are business savvy. And so, when we talk about a stock price going up and down, we can shortcut a lot of the explainers that other people may have to do.

Speaker 3 (21:45):

Gentlemen, looking ahead, what is the future of AXIA looking like? What’s the five-year plan?

Justin Browder (21:51):

When we talk about the future at AXIA today, it sure sounds a lot like it did 10 years ago. It is good things are going to happen if we find the next great consultant to join us, good things are going to happen if we find the next great client, and continue to deliver at a caliber we always have. So, the business strategy, although it may not look as futuristic and flying cars as people want it to look like, it’s as simple as that. If we attract the best talent and do great work, it’s going to be really good for our business and therefore the ESOP. And we’ve always said we can grow in the right way, not to chase targets. We can grow because we found the right person, or the next great client, or we find a new practice area strategically. It’s not because we demand 15%. Now, that may be the outcome, but we’re able to get there the way we want to get there.

Paul Grove (22:54):

Yeah, we’ve hired our entire company… Well, we’ve hired 50% of our company in the last two years. That’s impressive, and the ESOP is a foundation, part of the foundation for allowing that to happen. And we went back and back-tested what the impact was for several people, and it is double-digit growth in terms of their overall compensation or W-2 income, the ESOP has been a 10% plus benefit for them.

Justin Browder (23:33):

One thing I didn’t mention that’s probably worth mentioning is we were having a conversation with Ed, our former CEO, and the question was, best moment of your career, and he said, the announcement of the ESOP. Being able to be in front of that room and saying, now this is a room of employee/owners, was the best moment of a very decorated career.

Paul Grove (23:59):

There were people crying in that room, that were so excited, and just couldn’t believe how sharing AXIA was.

Justin Browder (24:08):

I told you not to tell anybody I was crying.

Speaker 3 (24:14):

And as Justin and Paul debate the dry eye question, we are left with some incredible first hand experiences on all the good an ESOP can accomplish at a company. What started as a need to retain talent and culture, blossomed into a healthy benefit package and a main driver of AXIA’s growth. AXIA is an excellent resource to see what an ESOP company can look like even a decade after the deal has been. Now, coming up on our final part of the series, we traveled to New York City to chat with Rudy Callegari of Edge Rental. Rudy brings to the table a company who is heavily invested in a cornucopia of rental vehicles, which support the film and entertainment industry in New York. Rudy is a shrewd businessman and has done his due diligence.

Rudy Callegari (24:56):

I’ve done PE, I did mergers, I did strategic sales, I’ve raised money with private equity, I’ve bounced around depending on the industry and business at hand. This was my first ESOP. I, like most people, I knew very, very little about it until I started to really look into it. And I don’t know, maybe being a cynical New Yorker, the first thing I said to my business partner is, I’m like, is this even legal? It seems too good to be true.

Speaker 3 (25:35):

We’d like to thank Paul and Justin of AXIA Consulting for giving us their time today. Now, we know you have questions and hopefully we have those answers. Please reach out no matter what step of the business sale process you are in, so we can help. You can drop us a line or get in touch with us at, that’s L-A-Z-E-A-R And make sure to check out the show notes on the site for this episode for an even deeper dive into all that we talked about today. See you next episode.

Listen to All Episodes of The ESOP Insider

We help business owners make goal-focused financial choices that not only maximize wealth but also honor their personal and financial vision for the future. 

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Podcast Replay: What is an ESOP and How Does It Work?
The Established ESOP
Podcast Replay: Why are ESOPs so Popular?
Episode 1: ESOP 101 With Ted Lape​

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