On Chris Stetler’s fourth day at Cargas Systems Inc., founder Chip Cargas called a company-wide meeting, the first since the pandemic.
Stetler was delighted when he joined 75 of the software company’s employees in the large Cargas team room at the head office at 101 North Queen Street. Another 85 joined the meeting virtually.
The 34-year-old had been trying for three years to get a job with the Lancaster-based software company and now here he is, a systems consultant for one of the country’s fastest growing companies. Cargas made around $30 million in sales last year.
What happened next surprised newcomers like Stetler and longtime employees like Jodi Macariola.
Chip Cargas announced that it is offering employees $1 million through a new stock ownership program called Cargas Shares. The company is privately held, so shares can only be traded with insiders. The program would accelerate the transfer of control of the company to employees. It would also allow new and future employees to build a stock portfolio.
The hope is that the new shareholding plan will attract and retain talent at a time when companies around the world are scrambling to find new employers in a labor shortage called “The Great Resignation”.
There was applause. Some shed tears of gratitude.
No one was surprised that a philanthropist and innovator like Chip Cargas chose to give money to his employees. He had created an employee share ownership program 24 years ago. What was impressive was how he had done it.
Typically, employee stock ownership plans are essentially retirement plans that provide employees with the benefits of ownership without directly owning stock in a company. Cargas employees have voting shares, a model that transferred ownership of Chip Cargas to employees.
Cargas Shares “is a very unique arrangement,” said John Reed, a partner at Lancaster-based regional law firm Barley Snyder, which has worked with family and private businesses for more than two decades. Reed helped craft the action plan, one of only two he’s ever seen in his career. It’s unique, in part because Cargas itself doesn’t get the financial benefits it would get in an employee stock ownership plan (called an ESOP).
“In my 25s, there’s another company that has a program like this and it’s limited to management levels,” Reed said. This other company is in Lancaster County, but client confidentiality prohibits him from identifying it.
Cargas Shares essentially gives employees free shares based on the amount they buy. Twice a year they can spend more and buy gift inventory.
What makes it unique is where the stock comes from and how it gets to the employees. That makes them real shareholders, Reed said.
Reed said the Cargas arrangement can be duplicated, but many business owners are unable or more interested in the financial benefits.
“It takes the right mindset and it takes successful business, which Chip had,” Reed said. “He’s a sole proprietor. He really looks at this more than himself.
Cargas calls this “participatory capitalism”.
The program is not designed to make a few people rich, but to spread the wealth widely across the company.
“I’m like a proud parent: when kids do well, I get excited,” Cargas said, reflecting on the announcement. “…I want to see everyone be a capitalist to the extent that they want.”
Cargas said it takes about six major shareholders to represent 50% of the shares. Shareholders vote for the board and the company’s financial statements are open to shareholders.
“I’ve been a long-time investor in the company,” said Macariola, Microsoft ERP practice director. “I’ve been here since 2000. I’ve seen ups and downs and I’ve seen his dedication. Chip always believed that we would be a great company. It’s great to see his vision come to fruition, just to see it happen.
For Macariola, who sees retirement on the horizon, the Cargas donation creates an incentive for the next generation of employees so that there will be demand for the shares when they retire.
The business continues to grow. CEO Nate Scott said it has 170 employees and plans to hire 30 in 2022.
During the last share purchase period, 68% of employees held company shares. Chip Cargas is no longer in the majority. Over the past 20 years, it has reduced its stake from 100% to 18% as a wide range of employees have purchased shares. Employees tend to stay with Cargas. Scott said turnover has been around 5% in recent years. The average in the tech industry is 13%.
As a new hire, Stetler was unable to participate in the stock purchase after Cargas announced in September. His first chance comes in March, and he’s been saving up so he can participate in stock purchases.
“It completely blew my mind how awesome Chip was,” Stelter said. “If you’re a long-time employee, you’ve got a really nice bump. It just reinforced that this is where I’ve wanted to be for a long time.