Engineering Services Business

Two engineers started their own engineering firm. After ten successful years they were concerned about the fact they were losing good, young engineers. Upon further examination it appeared that the young engineers were leaving to start their own engineering firms – much as the founder engineers had done years before. I asked the engineers “Why did you leave your firm to start this firm?” When we thought about it, the young engineers were leaving for many of the same reasons the founders started their firm.

What were the reasons? The primary reason was the aspect of control. To meet this requirement it was necessary to show that a new owner would have at some control over his or her professional practice and would have parity (equal control) with those of the same seniority. The second factor was a concern for prestige – to be called a principal as opposed to an associate in the professional practice. The third factor was the ability to realize a greater financial return from the professional practice over a long term as well as through immediate compensation.

To retain the young engineers we instituted a succession plan which opened the opportunity for ownership to engineers as they completed an associate status of about four years with the firm. After making an initial purchase, the engineers in each class of seniority could advance to various degrees of ownership in the firm with the highest level involving being a director of the board of directors of the professional corporation. The stock purchase program involved an agreement not to increase stock but to have senior engineers sell their shares as younger engineers purchased through the program of advancement. In this way the younger engineers could see their control increasing as they moved through the stock purchase program.

The succession plan documented not only the stock purchase program but also provided agremeent about compensation policies and retirement planning. The succession plan served to retain the young engineers who were formerly leaving the firm and provide value out to the senior engineers who founded the firm. Because the firm grew, the founding engineers still benefited with their younger co-owners when the firm was purchased by a national engineering company some years later.