2022 West Michigan CEO Summit - Scott Ryan, Gentex

Good morning everyone. Thanks for having me today, Deidre, thanks for putting together such a great event. So I'm going to talk about talent, some of the challenges we had with tackling the talent issues. So as I said, I'm the Vice President, General Counsel at Gentex. Before he groaned too much, how'd the attorney get in here? Unfortunately, I do get to do a lot of things that aren't legal related in my role, and one of them is our employee engagement. So I get to do a lot of work with employees, benefits, compensation, retention, recruiting. So I'm going to talk about a couple of things that we've been doing. First, I'll give you a quick summary of Gentex, then talk about two programs that we've done primarily focused with our hourly manufacturing employees, and then can't really talk about the talent issue without talking about work from home for a few minutes. So for those CEOs out there, private companies stay private and you can avoid SEC compliance slides like this that say I'm going to talk for 20 minutes and I may or may not know what I'm saying.

So who are we? Gentex. We're headquartered out in Zeeland, Michigan. Our main footprint is West Michigan. Over 90% of our workforce is in West Michigan. We do 100% of our manufacturing in West Michigan, although 65% of our revenue is generated from outside North America. So we are a global company when we talk about our products. You can see some of our other office locations: they have sales, some support engineering, some distribution centers. But again, we are a West Michigan company even though we do have a global footprint and global distributions. Right now we have about 5,400 employees. That's down from about 6,000 pre-COVID. We're a technology company. We happen to do a lot of business in the automotive market. We also have some other verticals where we sell products. Probably most known for our auto-dimming technology mirrors in your cars. You probably have some of our products in there. Aerospace windows. But what makes us unique is the fusion of technologies that we bring into complex products. Our 2021 performance: we did about $1.73 billion in revenue. Our 2022 guidance: we're roughly going to be about $2 billion this year. And then you can see 2023 our guidance is 15 to 20% above that. So that's pre-COVID revenue targets. So we go back and talk about we're at 5,400 people, that's down from 6,000 pre-COVID. We're scheduled to be bigger this year than we were pre-COVID. Obviously we're no different than everyone else out there right now with this talent gap, both on a salary technology engineering side but also with our hourly manufacturing workforce as well.

So that led us into trying to come up with different things we need to do to try to engage the available labor market. One of the things we did was we came up with what we call the Limited English Proficiency program, or LEP. In a nutshell, what is this? This is parts of our manufacturing process, manufacturing lines that are set up for Spanish-speaking only employees, so people with very limited to zero English-speaking capabilities. This came together. We had a few things come together in how we got to this point. So I'm going to take a step back here to 2018. We went through a CEO change. Steve Downing came in. He was at the company, he became CEO. He really started pushing us on our DEI efforts. We had DEI engagement and programs. He really pushed us to get to the next level. So we had that going on in 2018 and 2019. Then obviously COVID hits in 2020. When we were, because we are a global manufacturer, as Asia started shutting down, as Europe started shutting down at the beginning of 2020, our customer orders were dropping. At that point we told our hourly workforce we're going to guarantee you 32 hours of pay regardless of hours worked. We didn't know where customer orders were going, but we thought it was important for that segment of our employee base to be ensured that they were going to have some level of income coming in. Then obviously we went into our shutdowns here. We opened back up shortly after that on a limited critical manufacturing basis. And so we kept that commitment to the hourly workforce, but we did ask for some volunteers to come back in. We paid those people overtime rates from hour one to show our appreciation for coming in during the shutdown. Well then Asia manufacturing comes back online, Europe manufacturing comes back online. We're still going through our shutdowns here. We had a lot of back orders and we needed to get people back into the workforce. Well, we are having challenges filling that pipeline and getting people back in for numerous reasons. Enhanced unemployment was out there. We had a lot of people take that. People were nervous about coming back into the workplace. Vaccine wasn't out yet. Childcare, all the issues that we've talked about here. Getting people back in was a challenge. So we had to come up with something different.

So we decided we're going to try to engage a segment of the available workforce that we had never engaged before. Looking at the census data, we saw in West Michigan there's about a 24% Hispanic population. Another stat that jumped out to us was about 17% of the households speak a language other than English at home. And so we needed to capitalize on that and engage that. So we had support from Steve as the CEO. But I put together a cross-functional steering team. I can't really emphasize this enough. As you go down this list and see the different people around the company that were engaged in it, this was really critical. We needed this engagement from around the company coming from different parts of it, because it was very important to us that we did this right and that the people that came in through this program had the exact same experience and exact same opportunities as everyone else in the company. We truly believe that that was going to be an important part of this process. This committee we still meet weekly, two years into this program, to make sure that we're following through on that and making sure that people are having the exact same experiences as we go through it. So that means everything from in the manufacturing areas, bilingual leadership above that to help bridge that gap. So finding group leaders and area managers to have bilingual capabilities. Other groups in the company, HR, security, those people having bilingual capabilities on their teams. Every document that someone gets during orientation when they're onboarded is in Spanish. We have a whole other orientation that runs simultaneously that's all done in Spanish. Every benefits, 401k package in Spanish. Again, can't emphasize enough why this team was so critical to make sure that experience was the exact same for these people coming in.

So as I said, Q3 of 2020 we had some challenges with labor. We needed to come up with something else. We also thought it was the right thing to do as a company, really engaging this segment of the population as part of some of our outreach programs. And it was quite incredible too. The amount of positive feedback that we got through this, both internally and externally, was great. Externally, when we announced this, we started putting up our Spanish billboards and the community started hearing about it. With the positive feedback we got, we started winning social justice awards. We had community organizations that are involved with this part of the population reach out to us and say, how can we partner with you? How can we be a part of this and help direct people to you? So really changed the dynamic of recruiting for us. It gave us these other resources that were helping direct people towards us. We also found that once we did this and started getting people in, again I think this is why that process of bringing people in was so important for us to give them a good experience. They ended up being some of our best recruiters. They went back out and told their friends and family, hey, I have this opportunity and didn't have it before. It's been a great experience. And we started seeing their referrals coming in. So we've really been able to grow this program. It started with the mantra of one shift, one language, one line. And we wanted to start small, show we could do it and do it right. Then it expanded into two lines, three lines, four lines. It started on third shift and it went to second shift. Now it's first shift. Now we have all three shifts covered. Right now we're sitting that we have about 130 people involved in this program. And that's not including people that have come into the company through this program and have developed enough English skills and have now moved into another part of the company and moved out of it. So it's been a great thing for us as a company. Being able to work with this segment of the population, but really the impact that we've had on some of these people's lives has been really great. It's been incredible hearing some of these stories.

It also helped us in unintended ways as a company. One of the things was the team morale. The feedback, the support we got internally, this was really great to see. As we announced the program and it started getting bigger, we started having plant managers reach out to us and say, how can I get this into my plant? I want to be a part of this. To the point where we had to temper people and say, hey, we'll work on it. We got to make sure that we do this the right way. We didn't want to rush it. But that kind of feedback and knowing that there's that kind of support out there in the company was really great to see. It also has helped us through some of our other processes. Take orientation for example. We'd been doing onboarding for years and years and years, but because we had to do a real deep dive into that process as we were going through transitioning and translating it all to Spanish, we realized some of these things that could be improved, not just on the Spanish-speaking orientation but also on the English side. So it really opened our eyes. You think you're trying to do refreshes and you look at things and policies and processes over time, but getting to this level of detail really opened our eyes to some things and really made some additional benefits, which has been nice to see. It's also been amazing seeing the amount of people that were out in the company that have come forward and said, how can I be a part of this? Can I go to that recruiting event? We have people on third shift saying, can I come to that HR recruiting event? I want to go support that event and start engaging in this. And so we've seen these people come forward and create these new opportunities for people that were in the company that have led to some nice opportunities for these people to move into different roles and promotions.

As the program grew, we were able to do different things. One of the things that we're proud that we did was we started offering ESL classes, English as a Second Language. So we just finished a 12-week course, no cost to the employee. But they could come in and take these courses to develop their English skills, whether they wanted to do it for their own personal benefit or also as a company. If they develop those skills and they wanted to move into a different part of the company, that works for us too. But we thought it was important to give this part of our employee population this type of benefit to continue to develop those skills. We also, when we first set it up, we had all the work instructions, everything on the line set up in Spanish. What we did was we went back and we dual-columned everything so that as people were working all day, they could see their Spanish work instructions on the manufacturing line, but they could also see the English text. So as they were working all day, they could start developing some of those language skills. Something we didn't think about on day one, but as this program expanded, we were able to develop these other things to really try to continue to build it and show people support there, so that we support them as individuals. And that retention is just as important as the recruiting efforts.

I'm going to switch gears here. So that's our Spanish-speaking line. Another thing we do at Gentex that we did was we expanded our equity program. This really turned into both a retention and a recruiting tool for us. At Gentex, one of our big corporate cultures is that the employee wins when the shareholder wins. Part of that, how we do that, is a quarterly profit sharing bonus that matches our public earnings release. So every employee, no matter where you're at in the company, you're going to participate and get that percentage in your quarterly bonus. Another thing we've always had is a very broad equity or stock option program for employees. I would say we probably had one of the broadest programs in the country with the amount and the diversity of employees that we had on job roles involved in our program. Now I would say we probably have the largest, because we have every single US employee that's participating in our stock option program now. So what we did back in the summer of 2021 was we gave every employee on our hourly manufacturing employee base a stock option award. And you can see on this table here, it varied. And so what we found at this time, if we go back and just kind of recap where we were at that point, Q4 of 2020 was a record-breaking quarter for us. Q1 of 2021 broke that record again. Coming out of the shutdown, we had back orders, pent up demand. We also had the huge talent gap and labor gap that everyone knows about and everyone in here has probably experienced too. And so the amount of overtime we were working was quite high. And so we needed to balance that on our recruiting efforts. And sure, we did incentive programs, we did pay increases, all of those types of things. But what we really struggled with was all the signing bonuses. That works for some people, it wasn't going to work for us. The problem from a cultural standpoint was that we asked these people to stay with us during the pandemic and they did. And we were struggling with the new person that was going to get a nice signing bonus working next to the person that stuck with us through the pandemic. And that concerned us. So we came up with this program to try to balance both of those. So if you were with us during the pandemic and you had these years of service, in the summer of 2021 you got stock that was valued at these amounts based on this table. Now you're a shareholder, now you're an investor. You get your dividend check every quarter. And when they vest, they're your shares. You can do what you want with them. You can cash them out, you can keep being a shareholder. But it's their shares to hold as long as they remain an employee. We also used it as a recruiting tool. If you had been there for one year already coming out of the shutdown, then you got your shares. If you hadn't been there quite one year yet, then when you did hit that one year mark, you got your equity grant too. And so it's been a lot of work. Options are not the easiest thing to message and explain how they work. But the dollar amounts speak for themselves. People do understand that. And we feel like there was a good balance and it worked for us culturally of how to balance that use of recruiting but also as a retention tool. And it'll be an exciting day when all these options vest and people can cash these out if they want.

Last thing I'm going to talk about real quickly is just work from home. I mean, we could talk about this probably for days and days and days. And just like a lot of things, there's no right answer on this. So I'll just talk a little bit about what we've done. So we have varying scope. Obviously if you're working in a manufacturing facility, there's no such thing as remote work. You can't put parts together at home. All the way to software engineers, which could probably be remote full time, and everything in between. Culturally though, as I said, our footprint is primarily in West Michigan and we have a lot of different technology areas that work together. And so we depend on that collaboration and those interactions on how to bring these complex technologies together into a fusion of a complex product. And so work from home did concern us. We really encourage people to get back into the office, but we also had to realize the world changed and it changed fast. And we had to address that. So what we did rather than set some kind of corporate mandate and try to dictate this from the top, we really left it up to every vice president to handle their organization. We had a couple ground rules about where people could be located because the IRS, state tax authorities get all worked up about that and we didn't want to slip into a tax issue. But for the most part, how and when people work remotely we left that up to the organization's VPs. We thought they were best equipped to manage that, to determine what roles and what jobs could work remote when. And we hold the vice presidents accountable for the productivity of their teams. And it's not a perfect system, right? We've had people say, well if I worked in that part of the company I could be working from home. You're right. That's a conversation that we'll just have to go through. And this isn't, again I don't think there's a right answer to this. It's all fluid. Everyone's going to be a little bit different. That's how we chose to handle it. So I was going to be a Q&A time. I think we're going to cut that short because I see my buzzer. I've already gone over my time here. So appreciate everyone's time today. And because we didn't do the Q&A, if there are any questions you always feel free to reach out. But thank you.