At the time the employees took over the company, it had been subject to substantial disinvestment and needed to be recapitalized. That was financed from three sources:
The first was the payment of 24 months unemployment compensation in a lump sum to the employees to invest in the company. Wasn’t this a risk? "Sure, but it was the only option to preserve our jobs," said board president Maria Feli Arrizabalaga, who is an inside sales person and has 30 years seniority at Izar.
The second was the advance of severance pay from the national severance pay fund (which backstops insolvent companies for their severance obligations (20 days pay per year worked up to 12 months pay) as a loan to the company. That loan is currently a matter of dispute since the government has twice passed legislation forgiving loans for from this fund made for the purpose of keeping firms open as Sociedades Laborales.
The third was a 20 percent pay cut and increase in working hours agreed to by employees. Subsequently the company required additional capitalization in 1997, and the employees put in additional funds.
Izar is governed by an elected administrative board (similar to a Board of Directors) of 7 members. The General Manager is not a member of the board. All of them are inside members (and unpaid), drawn from various areas of the company: inside sales, workshop manager, purchasing, machine operator, quality control, etc., and elected by the employee owners. Additionally, there is a non-member secretary of the board, an outside lawyer, who is paid. The presence of an outside lawyer in the Board is legally mandated. "It’s a balanced board that reflects the makeup of the company," says Pujana. That’s better, he thinks, than the previous board that represented primarily production. The board meets monthly, and Pujana reports to it. The company is also unionized, and Pujana meets with the union on a monthly basis as well. Board officers are elected by the board, but the Izar pattern is to elect the top vote getters among the board members as President and Vice-President.
The company is owned by 130 of its 204 employees as a Sociedad Anonima Laboral (SAL). All permanent employees are owners, and none but employees are owners. Unlike other SALs, all permanent employees are expected to become members. By contractual agreement (which is not a SL legal requirement), employees who retire are required to sell their shares back to the company, and the company is required to buy them. Shares are valued at the price originally paid by the initial SAL members, adjusted for inflation. The current value of the original members’ shares is €28,000 (ca. $38,000). New employees put in €14,000 for their ownership stakes. This can be paid through a wage checkoff over a period of up to 10 years, depending of the needs of each employee.
In general the company has plowed 70% of profits back into reinvestment in the company (and it now has a brand new plant), far above the 10% compulsory reinvestment in the SL sector; it has paid out 30% of profits to its employee owners in dividends. Today Izar is the largest producer of cutting tools in Spain and one of the top 5 in Europe.
John Logue is the director of the Ohio Employee Ownership Center and a professor of political science at Kent State University. He visited Spain in October with the Cleveland Foundation study group and stayed on to visit ASLE, Izar Cutting Tools, and Elkar-lan. He appreciates the assistance and hospitality of Jone Nolte Usparitza and Josetxo Hernandez Duñabeitia, of Carlos Pujana, and of Mirene Arri of those organizations, respectively.
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