Hargrove Engineers & Constructors

Hargrove & Associates: Shaping the Future of Industrial Engineering

A Journey of growth, ownership, and prosperity as an S-Corp ESOP

At the heart of an Employee Stock Ownership Plan’s (ESOP) triumph is the cultivation of a unified culture. From the executive suites to the frontlines, each employee-owner contributes to the vibrant fabric of growth, expansion, and enduring success.

Fostering a sense of ownership and community lays the groundwork for a resilient and motivated workforce. Every decision, whether made at the highest echelons of leadership or the grassroots level, should also echo the values that define the company.

At the helm, proactive leadership charts the course, and strategic planning, rooted in a deep understanding of market trends and the company’s unique strengths, becomes the compass guiding expansion efforts.

For Hargrove & Associates, an S-Corp. ESOP, based in Mobile, Alabama; all of the above is just another day of operations. The company encourages innovation and active participation and seeks to empower its employee-owners to make use of the ESOPs full potential.

Hargrove can boast an approach that has ensured long term success for its employees. The company also recognizes the value of diverse talent and supports a culture of continuous improvement and adaptability.

Over the years, Hargrove has successfully adapted to market shifts and remains proactive in addressing any internal challenges. The company has also remained flexible, enabling it to pivot when needed to market conditions.

As Hargrove flourishes, its employees more readily embrace their roles as owners, basking in the glow of a brand that doesn’t just expand but leaves an indelible mark on the industry.

 From Seeds to ESOP Fruition

In the bustling landscape of industrial engineering, Hargrove, otherwise known as Hargrove Engineers and Constructors, stands as a testament to growth, resilience, and a unique employee-centric model.

Founded in Mobile, Alabama, in 1995, the full-service industrial engineering firm has blossomed into a powerhouse, now boasting around 2700 teammates.

Hargrove’s journey into employee shareholding began in the early 2000s. Ralph A. Hargrove, the firm’s founder, was laying the foundation for future growth through the hiring of top talent in the industry. And it was that same growth that inspired the ESOP model the company follows today.

Beginning in 2003, key teammates were brought in as shareholders and, along with Hargrove, helped steer the company into tremendous growth, where it grew between 50% and 100% per year for a number of years.

While overseeing the company’s finances, Chief Financial Officer Jeb Shell realized that between the core shareholders, almost 60% of the firm’s value was accounted for, and keeping so much of the firm’s value tied to just a handful of people was a risk to long-term success.

“I started running models and exploring what to do and in 2010 started exploring ESOPs… we devised a plan, and the plan was for them to sell 60% of their shares to an ESOP and the team,” Shell says.

The ESOP model took concrete shape throughout 2011, and by the start of 2012, it was on its way to safeguarding the company’s culture while providing a pathway for employees to become owners. In 2022, Hargrove became 100% ESOP owned.

Cultural Shifts and Employee Loyalty

Transitioning to an ESOP model isn’t just about financial structures; it’s about cultivating a culture of ownership. When the firm first announced to its employees that and launched a ”We Own It!” campaign, the effects of the new ESOP model they were operating under were quick to show themselves.

The firm’s stock quickly gained momentum, even doubling in value one year, and its brand was now more recognizable to the public.

While the initial model rollout was met with some skepticism, the tangible impact on employee accounts has strengthened the bond between the workforce and the company.

With its value reflected in the retirement accounts of the employees, the unique ESOP model has not only contributed to financial growth but also fostered loyalty and a sense of ownership among Hargrove employees.

“We’re not a hire and fire firm… if you were on a job that got canceled or delayed, [we’re] going to spend time to get you plugged into another project,” Shell says, explaining how the ownership model has inspired a higher level of teamwork and camaraderie between employees.

According to Shell, the main thing to be preserved is the company culture, and by aligning employee success with company growth, Hargrove has created a collaborative environment where the ESOP serves as a unique tool, aligning the success of employees with the broader growth trajectory.

While the ESOP model’s long-term benefits are evident, short-term incentives play a crucial role in keeping the workforce motivated. Bonuses should be strategically integrated not only as monetary rewards but as a tangible link between individual contributions and the company’s prosperity.

“My goal is to be able to tell you that if you give us 20 years of your career, you’ll retire a millionaire. That’s what ESOPs are all about. It’s about transitioning ownership from 1, 3, or 10 to the teammates and giving them a chance to participate in wealth like that,” Shell explains.

Of course, making the most of the ESOP model has its challenges, as the firm faced difficulties, particularly in communicating its long-term benefits to recruits. The challenge lies in making prospective employees understand the nuanced benefits and the life-changing potential of the model.

Because Hargrove is in the early stages of its life as an ESOP, those life-changing benefits are still being cultivated in the retirement accounts of its employee-owners.  As they have moved toward 100% ESOP ownership, the model’s benefits will begin to speak for themselves.

Shaping a Legacy of Strategic Growth and Impact

Looking ahead, funding the ESOP transition is a key short-term goal for Hargrove, as this will allow the company to grow sustainably without compromising its financial health.

“In the next 5 to 6 years, after funding this transition and paying out the shareholders… we’ll have a new strategy,” Shell says, explaining that the 100% ESOP model provides unique financial advantages, allowing the company to use cash that would otherwise be spent on taxes to fund this transition.

Fortunately, Hargrove leadership has known what it will do with those funds for the past 20 years. The roadmap for the next five to six years involves measured growth, retaining and recruiting top talent, and maintaining a reputation for doing things right.

The focus is on leveraging the firm’s now front-running reputation to help navigate the transition period efficiently, pay off debts, and generate cash flow. The fact is, Hargrove is much larger in its industry now, so it doesn’t have to focus on expanding quite so rapidly at this stage as it used to.

“We can be a lot more deliberate about how we grow, which will allow us to generate more cash, and then we’ll have to decide on where we deploy that to get the best return on investment for our ESOP,” Shell explains.

Beyond this transition, the company aims to strategically deploy its resources to ensure continued success and make every teammate a participant in the firm’s prosperity.

In 2023, the firm pulled in $460 million in net revenue and is predicted to clear north of half a billion dollars in 2024. When objectively looked at, the numbers are clear. Hargrove is right at the point where the value curve for its ESOP model is set to go up exponentially.

Hargrove’s growth has been all organic, but as time passes and it starts generating more liquid capital, the firm’s leadership is also open to laying the groundwork for future expansion models. Overall, as Hargrove navigates the complexities of growth and ownership, its commitment to the ESOP model stands as a beacon in the industrial engineering landscape.

The journey, marked by resilience, loyalty, and strategic vision, not only shapes the future of the company but creates a legacy where every employee contributes to their financial success. In the intricate dance of growth and ownership, Hargrove is crafting a narrative of success that extends far beyond the boardroom.

AT A GLANCE

Hargrove Engineers & Constructors

What: A leading S-Corp ESOP in industrial engineering, procurement and construction, shaping the future of the industry since its establishment in 1995

Where: Mobile, Alabama

Website: https://hargrove-epc.com/