Position: COO/president of Pala-Interstate; CEO/president of Pala Group
What they do: Industrial construction and maintenance
Revenue: $104 million
Next goal: Maintaining the success of the company as it transitions into an ESOP
When Fidel Castro’s revolution came to power, Jose “Rick” Tarajano was left without a job. The American-educated Tarajano left Cuba for the U.S., eventually founding Pala Inc. in 1973.
The Pala Group, an industrial construction contractor, does more than $100 million in annual sales and has grown about 50% over the past four years, according to president Jorge Tarajano, who is Jose’s son. Potential buyers were showing interest in the company, but the idea of selling to an outside firm didn’t sit well with the Tarajano family.
“How do you do it without losing the identity of the business?” Jorge Tarajano says. “Pala, for 35 years, has been a family business, not because it’s owned by a family, but because we’ve grown to become a family.”
Pala averages about 800 employees; more than 150 have been with the company at least 10 years, and many of those jobs would be in doubt if the company was sold to an outside firm. After some research, Tarajano says an Employee Stock Ownership Plan emerged as a viable alternative.
An ESOP is a defined-contribution employee benefit plan that allows employees to become owners of the company for which they work. Generally, the company sets up a trust that accepts contributions from the company into individual employee accounts used to purchase stock. Vested employees can “cash out” at retirement. There are significant tax advantages for the company owner—such as capital appreciation, a reduction in the tax liability and incentive-based retirement—and Tarajano says ESOP just seemed like the right thing to do.
“The ESOP allows you to perpetuate the business into the future by turning it over to the employees and the associates that got us where we are today, and they get the benefit of the future growth and the ownership of the business,” he says.
The Jan. 10 announcement was met with a standing ovation from the employees, Tarajano says. For now, the management team will remain the same. Over the next several years, the family will gradually get out of running the company as the employees develop an ownership culture.