Employee Stock Option Programs July 2024

Ohio Screw Products, Inc. (OSP)

July 29, 2024

Ohio Screw Products, Inc. (OSP)

The Vision Behind a Manufacturing Legacy

A culture of ownership and collaboration drives success within the Ohio Screw Products ESOP

The machining industry, which involves the manufacturing of precision components, is a sector that faces its own unique set of challenges. Companies within this field are tasked with keeping up with the rapidly evolving technologies pushing the sector forward. Furthermore, as the workforce ages, a shortage of skilled labor becomes another area that must be addressed.

For Ohio Screw Products, Inc., despite the current economic challenges, providing the right solutions and remaining an industry leader has proven to be an effortless route.

Originally founded as a screw machine job shop in 1945 by H. A. Hewitt., Ohio Screw Products, Inc. (OSP) is a precision machining company that, over the years, has rightfully claimed a dominant position in its industry niche.

The company’s performance has undoubtedly been influenced by its Employee Stock Ownership Plan (ESOP) structure.

With this highly accountable and rewarding structure in mind, OSP leadership focuses on maintaining a clear vision and strategic planning, establishing a comprehensive one-year, three-year, and five-year strategy.

This plan encompasses investments in new technologies, diversification of product offerings, and exploring new markets while maintaining the company’s core strengths.

During the implementation of this strategy, strong financial oversight is critical, so OSP has prioritized partnerships with financial analysts and valuation experts to ensure the ESOP’s health and stability.

At the operational level, engaging employees in the ESOP structure is equally as important to OSP leadership because the end goal for this ESOP is a thriving, innovative company with a dedicated, empowered workforce.

Getting there involves maintaining steady growth while stepping into the next rendition of the operational process.

By fostering a positive, collaborative culture, OSP ensures that its success benefits the company and enriches the lives of its employee-owners.

From Humble Beginnings to Employee Ownership

Ohio Screw Products (OSP) was officially incorporated in 1977, marking the beginning of a company dedicated to precision machining and innovative solutions.

At the time, it had grown past being the small shop it used to be, growing to an annual revenue of $4.5 million. However, despite its growth, OSP has primarily kept its area of expertise compact.

“We specialize in a wide variety of materials like brass, aluminum, stainless steel, alloy steels, nylons, and copper,” Company President Jeff Haag says.

The wide breadth of precision product materials OSP can machine has developed as a niche, making it one of the only companies with such a diverse product lineup.

The company is also uniquely equipped to serve multiple, non-overlapping industry sectors like the military, electrical, and automotive sectors.

Due to its versatile offerings and range, OSP’s performance as a company only makes sense. However, the true accelerant behind its massive success is hidden within its operational structure rather than its sales revenue.

In 2007, Ohio screw products transitioned into an Employee Stock Ownership Plan, becoming 100% employee-owned by 2013.

This transition was a significant milestone, as it helped set the foundational culture of ownership and collective responsibility that has become so integral to the company’s results.

With the ESOP structure set up as a large, long-term incentive, OSP employee-owners display a level of engagement and commitment to the company’s success that is unlike any other.

A large portion of that is thanks to the consistent efforts of OSP leadership to promote the ESOP value within the company. Generally, educating employees about the ESOP structure and its benefits has been paramount.

New hires are introduced to the ESOP during their onboarding process, and employees in general are given constant touchpoints to communicate the value of the ESOP.

“We have a yearly meeting, get an annual evaluation done, then we have a party to hand out the statements,” says Director of Human Resources, Rebecca Plato, explaining how at one point the company was able to treat employees to statements showing over $7000 per share.

To further educate and motivate employees, OSP even sends employees to ESOP conferences, providing them with insights and best practices.

The goal is to quietly yet firmly convey that the ESOP’s long-term benefits are directly influenced by the impact of their contributions on the company’s performance.

In the Ohio Screw Product’s case, the value has been communicated effectively, as the company’s highly positive ESOP culture has encouraged some formerly retired employees to return to work, eager to regain shares and once again influence the company’s future.

As far as employee retention is concerned, loyalty like that can only be displayed by owners with a vested interest in their work. And fortunately, the title of owner is something employees get to enjoy very early on.

New employees automatically join the ESOP and begin earning vesting shares after their first year. OSP has maintained a six-year vesting schedule, ensuring that employees are gradually integrated into the ownership structure.

Additionally, the company has consistently bought back shares from departing employees after a year, redistributing them to current and future employees.

This practice has reinforced the sense of shared ownership and is a driving factor behind the company’s growth.

However, the ESOP culture is only the foundation here, the specific things that move OSP’s sales and revenue along have more to do with its operational strategies.

The Rebirth of the OSP Revenue Model

Like many businesses, OSP faced challenges during the COVID-19 pandemic, including talent retention and maintaining work skill proficiency.

However, unlike many businesses, OSP’s leadership saw the nationwide pause as an opportunity to evolve its operations rather than just endure. Part of that evolution involves a shift towards newer technology.

“We added some new, modern equipment that allows us more flexibility to go after some different types of business that, historically, would not have been practical for this company,” Haag explains.

Investing in modern equipment and technology, such as live tool milling, has streamlined the OSP processes and opened up new business opportunities, but what’s most interesting about the approach is that many of the parts are not new.

The second part of OSP’s evolution has involved identifying the older, more specialized production methods that still hold value even in the face of new manufacturing technologies.

With this, the company has expanded its capabilities while preserving the older methods many others have dropped as they modernize.

In short, this means that other companies won’t be able to close the skill gap that only OSP will be able to fill in the future when it comes to manufacturing specialized parts.

So internally, the plan is simple, refine the process and expand. However, externally, the OSP strategy leverages relationships more than it does processes.

The company maintains partnerships with key vendors and suppliers to ensure a smooth supply chain, enabling it to meet its production goals efficiently.

One of Ohio Screw Product’s largest partners is Prairie Capital, which provides the company with financial analysis support and conducts the valuation of its ESOP shares every year.

Additionally, institutions like Huntington Bank support OSP by handling all its banking-related matters. OSP also relies on a network of tooling, raw material, and equipment vendors to maintain smooth day-to-day operations.

Moving Forward With Company Culture in Mind

Overall, OSP’s hybrid strategy of continuous reinvestment in cutting-edge manufacturing technologies coupled with the preservation of efficient older methods will provide the company with a competitive edge for many years.

Despite these changes, Ohip Screw Products has never lost sight of the amazing culture of collaboration and teamwork that invigorates its employee-owners.

Over the years, it’s safe to say that the company’s leaders have sought to enhance the culture rather than change it, ensuring that the positive aspects of OSP’s family-oriented environment are preserved while introducing new strategies for growth and accountability.

“One thing I’ve always enjoyed about OSP is that it truly is a family-oriented company… I’ve always gotten that feeling of togetherness,” Plato says.

That feeling of togetherness permeates the OSP culture at its core and can be seen as the source of the company’s spirit.

As Haag explains, part of OSP’s long-term vision is to continue to build on that culture with strategies that innovate while preserving what works across the board, as the effects it has experienced thus far will only further compound.

OSP’s future is guided by a plan that balances maintaining proficient operations with a mix of old and new. This hybrid model ensures that OSP can cater to a diverse range of customer needs while remaining competitive in the market.

Ohio Screw Products, Inc. stands at the intersection of tradition and innovation. The goal is to leverage the unique skills of its workforce and the advantages of its ESOP structure to build a sustainable, thriving business.

With a robust ESOP structure, dedicated employees, and a commitment to technological advancement, OSP is well-positioned for a prosperous future.

The company’s success will be defined by its ability to maintain its core values while adapting to new challenges and opportunities.

As OSP continues to grow, it remains a testament to the power of employee ownership and collaborative culture in driving long-term business success.