Building an Ownership Mentality Among Employees Presenters Mike

“Building an Ownership Mentality Among Employees” Presenters: Mike Foley, CEO, Reflexite Corporation Bill Marshall, CEO, Phelps County Bank Moderator: Diane Stoneman, Director of Consulting & Training, Winning Workplaces © 2008 Winning Workplaces. May not be reproduced or distributed without expressed written permission of Winning Workplaces.

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Top Small Workplaces Competition q In collaboration with The Wall Street Journal q 2007 Winners profiled: WSJ. com/Entrepreneur q 2007 TSW Report @ Winning. Workplaces. org q 2008 Top Small Workplaces evaluation underway q Wall Street Journal announces October 13 q TSW Conference October 14 & 15

Top 2007 Small Winners Workplaces Alaska Wildland Adventures Barclay Water Management Corporate Ink Cowden Associates Inc. Exactech, Inc. FRCH Design Worldwide Gentle Giant Moving Co. Guerra De. Berry Coody Healthwise NRG Systems, Inc. Phelps County Bank Point B Solutions Group, LLP Reflexite Corporation Restek Corporation Summit Aviation

2007 Top Small Workplace Winners Key Theme: These leaders continually work to sustain a culture of employee ownership Of the 15 winners: 80% practice open book mgmt Of 13 private firms: 7 allow employees to own stock

Employee Ownership What’s the Big Deal? q Everyone is aligned and committed to working toward common purpose q Employees have a stake in the outcome, thus greater accountability q Helps firm weather tough, lean times

Employee Ownership What Not to Do Give employees a stake in the outcome BUT: q Do not teach them how the business makes $$ q Do not teach financial literacy q Do not help them understand how their work impacts the business measures q Do not intentionally work to create a culture of engagement and participation

Today’s Agenda q Tale of two companies q Philosophies and practices q Impact on business and workforce q Lessons learned q Questions from audience

Featured Firms Bill Marshall, CEO Phelps County Bank - Community Bank, Rolla, MO - 85 Employee Owners Mike Foley, CEO Reflexite Corporation -Manufactures Optical Components & Film Avon, CT - 515 Employee Owners

Reflexite Overview Fundamentals Core Technologies • • • Technology Ownership Quality Optical Engineering Microreplication Polymer Processing Three Business Units • • • Reflective Products Business Display Optics Optical Solutions Business

Reflexite Global Locations Reflexite The Management of Light ® May 2008, 515 employees Worldwide

Ownership Fundamentals How Did We Do It? q Share ownership with all employees, worldwide: • • Average ESOP account = $120 K 10 of top 20 ESOP shareholders are non-exempt EO’s, w/ avg. account value over $500 K “International ESOP” – phantom plan mirroring US ESOP plan Employee Stock Purchase Plan q Participative Management • • • Open Book Financials • Training on what the numbers mean • Monthly Updates at all sites • “Reflexite Value Drivers”: link individual’s job to firm stock price Pass through voting on key decisions - change of control, elect Board, etc. Engagement in Critical Issues • Business Decline Situations • Managing Change

Ownership Fundamentals How Did We Do It? q Specialized Communication Techniques q Share rewards - “feast or famine” incentive pay philosophy • Short term • Every Reflexite Employee on a profit-based incentive pay plan • Paid monthly to all but upper level management • Accelerators for mfg employees tied to continuous improvement • • scrap reduction on-time delivery reducing customer returns Long Term • ESOP allocation tied to annual performance of business • Stock Option Programs focus on long term share value

Ownership Fundamentals How Did We Do It? q Employee Opinion Surveys: confidential survey q Specialized Training – avg. 40 hrs/yr per employee • • • “Fundamentals of Success” - new employee orientation Rights, Risks and Responsibilities of Employee Ownership Reflexite Basic Training Reflexite Quality System Personal Financial Management • • • Effective Communication Stress management Computer Skills Negotiation Interviewing Skills Team Leader Skills

Why do we do it? q Engagement Encourage employees to think and act like Owners and they will amaze you q Retention of Human Talent Many companies say employees are their most valuable asset, how many actually walk the talk? q Superior Financial Results Find balance between short term profits and long term share value

Business Decline - Contingency Planning Case Study: The Challenge q In a business downturn, how do you engage employee-owners in improving the result? q Solution - “All work is a Process” – planning matrix - Define symptoms and possible fixes - Engage E-O’s in solution - Set Targets and Track Results - Constantly Update People on status

The Asian Expansion Case Study: The Challenge q Reflexite: 21 subsidiaries around world & continues to expand q In the last 2 years we opened: Our third factory in China Our first factory in Korea Our first member company in India Our first member company in Africa q You CAN’T over communicate. Human nature dislikes change. People read the papers, what do you think they fear?

The Asian Expansion Communicate, Communicate q Answer question: “What does expansion mean to me? ” q Encourage employees to “wear their owner hat” q Address job security & Impact on employee’s wallet q Build strategy based on self-awareness of situation q Reflexite strategy: • • Segment markets to avoid cannibalization Use local presence to open global markets Track the “Trade Balance” Keep moving US mfg towards high tech - high margin production • Manage attrition in US factories • Execute!

Comment Element: Communication Valuable Tools & Techniques q Open Book Management q Frequent, regularly scheduled meetings q Monthly meetings at all sites by business leader q Quarterly meetings in person at larger sites by CEO q Web Simulcasts q Communication delegation process q Town Meeting Approach to Major Decisions q Clear the air to implementing change: “Answer all Questions” q Truly listen and you will be surprised what you learn

Phelps County Bank q Single owner prior to 1980 q Began ESOP in 1980 q $7 million in assets at inception of ESOP q 1980 - 1993: grew 5% ownership to 100% q Profits $200 k in 1980 q $217 million in Assets today q Profits FYE 2007 $3. 6 million

Two Types of Ownership Stock Ownership and Job Ownership q Stock Ownership: long term financial security at retirement q Job Ownership: employee success during working years

Job Ownership q 24/8/8/8 - 8 hours with family - 8 hours sleeping - 8 hours working q 50% of life spent at work q Rewarding not just financial: educational, growth opportunities, time for fun

Job Ownership q Pay - equal to or above peers q Advancement - 44 promotions in last 24 months q Knowledge University Style Curriculum 3 majors, 3 minors, Electives, Labs Banking & Financial Credits Microsoft Classes Sales Training Personal Growth Economics

Job Ownership Benefits -15% annual Contribution to Pension - Withdrawal plan from ESOP - Early Diversification from ESOP - Annual Incentive Plan q Self Worth: Low turnover - avg. tenure 13 years q Growth adds to personal growth & advancement

Stock Ownership q Sharing of Capital q Involve employees: share successes & failures q Builds commitment to their important role q Create team of experts q Make ownership substantial today & tomorrow

Stock Ownership q Value of company $26 million q Stock growth 225% in last 15 years q Employees distribution: $20. 5 mil. in 16 years q Account Size - 10 years $104 k - 19 years $427 K q Average Account Balance $336 k

Impact of Stock & Job Ownership q Committed Owners q Increased commitment adds to value q Low Turnover q Real Job Satisfaction q Creation of Self Worth = personal & corporate net worth

Lessons Learned q Worry about the people who get it, NOT the ones who don’t. q Don’t spend time trusting your employees. q Spend time getting employees to trust you! q Celebrate failures - Cherish mistakes. q Make sure everyone has same opportunities available to you.

Don’t Manage, Lead Webster’s definition of Manage: “To Direct, Control to make Submissive” q Employees know difference between leaders and managers q Share everything! q Teach, Teach q Then--- remove the reins

Questions? www. phelpscountybank. com www. reflexite. com

Upcoming 2008 Webinars Featuring 2007 Top Small Workplace Leaders q June 25 • Designing Strategy from the Bottom Up Amy Bermar, Pres. , Corporate Ink, Newton, MA William Petty, CEO, Exactech, Gainesville, FL q July 29 • Fostering Trust Within the Workplace Paul Silvis, Founder, Restek, Bellefonte, PA Paal Gisholt, CEO, Smart. Pak, Plymouth, MA

Thank You! www. winningworkplaces. org