Communicating Your ESOP - handouts · PDF fileCulture + Incentive High ... and across the...
Transcript of Communicating Your ESOP - handouts · PDF fileCulture + Incentive High ... and across the...
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Communicating Your ESOPPresented by
Loren Rodgers, National Center for Employee Ownership
Loren Rodgers
Loren Rodgers is a project director at the National Center for Employee Ownership and will become its executive director in April this year.
Loren joined the NCEO in 2005 after working ten years as a consultant to employee-owned companies. He is a frequent speaker and writes extensively on many aspects of employee ownership in
f i l d d i bli ti H k ith iprofessional and academic publications. He works with companies on governance, plan design, operational issues, assessment, communications, and ownership culture. He also consults internationally on employee ownership as public policy. He studied at the University of Michigan’s Institute for Public Policy Studies, where he focused on employee ownership in the United States and in Slavic countries..
Agenda
1. What to communicate
2. When to communicate
3. Who communicates
4. Common communication pitfalls
5. Tools and Resources
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• Faster GrowthCompanies with ESOPs grow 2.3% to 2.4% faster measured in sales, employment, and productivity growth.
• Higher compensation5-12% higher wages than in comparable non-ESOP companies.
• More assets
Why Are We Here?
ESOP employees have 2.5 times the retirement assets in company-sponsored plans.
• Improved company stabilityLess likely to face bankruptcy or acquisition; 20% better “survival” rate.
Investment Return
Low to Low
Why Are We Here?
Incentive Only Low to Medium
Low(-1 to 2%)
Culture + Incentive High High
(5 to 13%)
Survey: What does the ESOP mean to you?“I think of working at a place that is worth
putting my time into.”
“As an employee/owner, it is my
Why Are We Here?
responsibility to take a hard look at what I can do to work more efficiently, to curb my expenditures and to suggest time/cost savings on to others.”
“My future financial status is in my hands.”
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Survey: what does the ESOP mean to you?“I’ve heard all this stuff at other places I’ve
worked but it never happened…”
“Am I supposed to know what this is?”
Why Are We Here?
“When they say we're employee-owned, all they mean is that employees have stock.”
“I'm not sure I want to be an owner.”
1. What to Communicate
ESOP Transaction
ESOP Value
ESOP Mechanics
Benefit to seller
Seller’s perspective
Public policy / Congress’s goals
“We’re not strange”—the
Business Literacy
Data
Culture
We re not strange the state of ESOPs in the US
Congress Supports ESOPs
Congress passed Employee Retirement Income Security Act (ERISA) in 1974 to
• increase retirement assets
• distribute wealth more equitably
• create a more competitive economy
S Corporation ESOP law: 1997
Pension Protection Act: 2006
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Employee Stock Ownership Plans
• 10,500 ESOPs today in US
• About 13 million employees
• Over $900 billion in assets
Growth of ESOPs
From “A Statistical Profile of Employee Ownership,” www.nceo.org/main/article.php/id/2/
Examples of ESOP Companies
New Belgium BrewingFort Collins, CO
StylmarkMinneapolis, MN
ITAGroupWest Des Moines, IA
King Arthur FlourNorwich, VT
Glatfelder InsuranceYork, PA
Gardeners’ GuildRichmond, CA
Zachary’s Pizza
www.nationsonline.org/maps/USA_blank_map.jpg
Cal-Tex CoatingsScherz, TX
CALIBRE SystemsAlexandria, VA
Quik TripTulsa, OK
Publix SupermarketsLakeland, FL
SAICLa Jolla, CA
Oakland, CA
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1. What to Communicate
ESOP Transaction
ESOP Value
ESOP Mechanics
Potential growth• Self-directed projections
• No promises
Business Literacy
Data
Culture
• Highlights of ESOP research
Acknowledge risk
Link risk and reward
Employer Contributions to ESOPs
• National average for all retirement-oriented plans:4% of compensation
• National average for ESOP t ib ti i i t icontributions in private companies:
8 to 10% of compensation
1. What to Communicate
ESOP Transaction
ESOP Value
ESOP Mechanics
The “hard facts”
Participation
Contribution / allocation
Vesting / distribution
Taxation
Di ifi ti
Business Literacy
Data
Culture
Diversification
Voting / governance
Required Communication• Account statements
• Summary Plan Description
• etc.
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What Is an ESOP?
ESOP stands forEmployee
Stock
Ownership
PlanPlan
ESOPs must follow federal law because the federal government provides tax benefits when ESOPs meet certain requirements.
ESOPs and 401(k)s
ESOPs are benefit plans.
They have many of the same rules as 401(k) plans. Key exceptions:
• ESOPs invest primarily in company stock• ESOPs can take loans
Employees do not use their own assets to acquire stock in anEmployees do not use their own assets to acquire stock in an ESOP (with rare exceptions).
401(k) plans are not usually effective for ownership transition.
Common Misperceptions
• Employees don’t pay for their stock (with some exceptions)
• Beneficial ownership, not direct ownership
• Minority ownership, not controlling ownership
• Some governance power, no management power
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Legal Rights of ESOP Participants
To Receive Information About the PlanTo Have Access to Plan DocumentsTo Receive Annual Account StatementsTo Direct a Vote on Major Corporate Decisions
• Liquidation• Sale of substantially all assets• Recapitalization• Merger or Consolidation• Dissolution• Reclassification
Overview of ESOP Flow
Original Owners
ESOP Former participants
Step 1
Step 1: The ESOP transaction
Overview of ESOP Flow
Original Owners
ESOP Former participants
Step 2
Step 1: The ESOP transaction
Step 2: ESOP operations
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Overview of ESOP Flow
Original Owners
ESOP Former participants
Step 1: The ESOP transaction
Step 2: ESOP operations
Step 3: ESOP distributions
Step 3
1. What to Communicate
ESOP Transaction
ESOP Value
ESOP Mechanics Business concepts
Business Literacy
Data
Culture
Your business model
Corporate vision/purpose
Critical numbers
Connections
Valuation
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Reflexite Business Contingency Plan
1. What to Communicate
ESOP Transaction
ESOP Value
ESOP Mechanics
Business Literacy
Data
Culture
Track performance
“Current Events”
1. What to Communicate
ESOP Transaction
ESOP Value
ESOP MechanicsDefine ownership
Business Literacy
Data
Culture
Define ownership
Manage expectations
Busting rumors
Clarity about decision making
Principles
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Defining Employee Owner
Being an employee-owner means:• Connection with the business realities (information)• Responsibility to influence others up, down, and across the
organization (communication)• Financial Incentive to make wise decisions (stewardship)
It does not mean:• Unlimited access to all business information (total
transparency)• Control beyond clearly understood boundaries
(unlimited authority)• Guaranteed employment couple with predictable
investment returns (elimination of personal risk)
The message is the message.
Carl Warren & Company “shares a lot of information. That’s partly to give employees information they need, but it serves another purpose as well. The sheer volume of information shared by the company, in good times and bad, reinforces the idea of transparency and makes it harder for anyone to claim that there must be a hidden agenda.”
The Employee Ownership ReportJuly/August, 2008
2. When to Communicate
http://www.allposters.com/-sp/Jazz-Band-Posters_i1665756_.htm
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2. When to Communicate
Newsletter
Annual meetings
Monthly brownbags
Periodic Employment Cycle
Weekly CEO message
Huddles
Middle manager retreats
Employee ownership month
Permanent Opportunistic
Employee Ownership Month
2. When to Communicate
Interview
Orientation
1-, 3-, 6-month review
Periodic Employment Cycle
Participation
Full vesting
Diversification
Retirement age
Permanent Opportunistic
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Employment Cycle
Thank you to CALIBRE Systems for this slide.
2. When to Communicate
Summary Plan Description / Plan document
Intranet FAQs
I AV di
Periodic Employment Cycle
Intranet AV recording
Corporate library
Hotline
ESOP champions
Permanent Opportunistic
Intranet
ew B
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Than
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2. When to Communicate
Periodic
Rollout
ESOP/Company milestones (loan repaid, anniversaries, goal / threshold attainment)
Employment Cycle
goal / threshold attainment)
Big news
Management transitions
Reaction to employee survey
Permanent Opportunistic
Survey Results
Company X YZ compared to the database
70%
80%
90%
100%ideological cynics
situational cynics
0%
10%
20%
30%
40%
50%
60%
DB Average Company XYZ Average
neutral employees
believers
3. Who Communicates
Desired Characteristics
• Knowledgeable
• Able to “speak into the listening”
• Credible
• Persuasive
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3. Who Communicates
• Senior mangers
• Seller
• Outside directors
• ESOP trustee
• Service providers
• Middle managers
• Non-managers
• Employee committees
• The whole company• Service providers
(valuation firm, administration firm, legal counsel)
• Financial planner
• People from other ESOP companies
• The NCEO
3. WHAT Communicates
• Compensation system
• Promotions / job evaluations
• Incentive program
• Cutting an ESOP check to a retiree
• Rumor mill
Sill b li i• Silly symbolic issues
• External advertising
Advertising
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4. Common communications pitfalls
• Neglecting middle managers / supervisors
• “Selling” the ESOP
• Doing the “ESOP sprint” – it’s a marathon
• One-way communications
Some Keys to Effective Training
• Build it into job expectations• Hold employees and managers accountable• Measure it• Multichannel approach• Selective use of peer-to-peer training• Coherent progression of content over multiple sessions• Exploit teachable momentsp
“Everyone has heard the saying, ‘you can lead a horse to water, but you can’t make it drink.’ We agree, but we want to do everything we can to make the horse realize it’s thirsty.”
— Dick Rue, CFO of ITAGroup(Employee Ownership Report, Nov.
2006)
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5. Tools and Resources
Newsletter Brownbag Cascade Annual Mtg Orientatn 3-month Participatn Full Vestg
ESOP Transaction 4 min.
ESOP Value 2 per year 1 per year 10 min. 2 min. 4 min. 4 min.
Periodic Employment Cycle
The ESOP Communication Grid
ESOP MechanicsHard Facts 1 per year 2 per year 2 min. 5 min. 2 min.
Participation 1 per year 2 per year 1 min. 2 min.
Contribution / Allocation 2 per year 4 per year 1 per year 10 min. 1 min. 4 min.
Vesting / Distribution 1 per year 4 per year 2 min. 10 min.
Taxation 1 per year 2 per year 1 min. 3 min.
Diversification 1 per year 1 min. 1 min.
Voting / Governance 2 per year 5 min. 2 min. 2 min.
Account Statements 1 per year 2 per year 10 min. 2 min.
5. Tools and Resources
Steps to make your own grid1. Brainstorm content onto post-its2. Sort each post-it into a category / categories3. Determine chronology for employment cycle items
periodicperiodic
5. Tools and Resources
ESOP Communications Sourcebook
The Ownership Edge
Webinars, Seminars, and the Annual Conference
www.nceo.org/events
Give us a call!
510-208-1300
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Loren RodgersProject Director
National Center for Employee OwnershipOakland, CA 94612
510-208-1300
Questions?
email: [email protected]