Employee Stock Ownership Plans: Employee Compensation and Firm Value
Employee Share Plans Maximum Business Value
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Transcript of Employee Share Plans Maximum Business Value
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Employee Share PlansEmployee Share PlansMaximum Business ValueMaximum Business Value
Craig West
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did you know?
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Of the estimated $8 trillion of corporate equity in the United States, employees own about $213 billion through ESOPs
and similar stock plans
$213 B $213 B in US ESOP’sin US ESOP’s
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ESOP companies that combine employee ownership with a
participative management style grow 8-11 % per year faster than they
otherwise would have.
8–11% 8–11% Faster growthFaster growth
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In the United States, more than 11,500 companies have an ESOP covering
almost 9 million employees.
11,50011,500 companies & companies & 99 million employeesmillion employees
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Competitive Edge
“People are definitely a company’s greatest asset.
It doesn’t make any difference whether the
product is cars or cosmetics. A
company is only as good as the
people it keeps”- Mary Kay Ash
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Performance examples!Year
1Year
2Year 3 Year
4Year
5
Net Profit (average improvement)
55% 51% 35% 40% 43%
Staff Turnover (as a percentage of total employees)
13% 10% 6% 6% 4%
Absenteeism (average days per employee)
5 3 3 2 2
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Rewarding key people who are already collaborating to drive the
business !
What are you telling your What are you telling your staff by the way you pay staff by the way you pay
them ?them ?
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Base Remuneration •Salary & Wages•Other benefits
Short Term (annual bonus)•Cash bonus•Commission •Cars•Fringe benefits•Entertainment•Income Continuance Policy•Other benefits
Long Term (loyalty) bonus •Retained Bonus•Equity Savings Plan•Equity•Shadow Share Plan•Replicator Plan
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Key people as Key people as business owners ?business owners ?
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“Employee ownership is world changing. It is the way ahead…in the global economy. It reflects that human capital is becoming more important than physical assets… The global economy will succeed when employees feel a stake in the business”
Gordon Brown MP – Chancellor of the Exchequer
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Sharing the profitSharing the profit“The truth is that profit sharing doesn’t create employee involvement - it requires it.”
Ricardo Semler
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Ladder to Equity
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1. Employee – earning income (salary/wage/hourly rates etc. ) – this is where most employees sit ( and stay ).
2. Income model – the first step on the ladder then is to boost that income and this is quite common – we often see companies paying bonuses, commissions on sales, incentives etc. to increase an employee’s income.
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3. Profit share – most equity plans begin with this simple step and in fact many end at this step – simply providing a share of profits to employees is a great additional incentive as they are directly rewarded as a result of the financial performance of the company in the same way that a business owner typically would be.
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4. Equity – whilst there are many equity plans available our Peak Performance Trust provides a formal structured mechanism to incorporate stages three, four and five into any business succession plan - this allows employees to transition into an equity ownership position within the business they work for.
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5. Control – often this step is never utilised though on occasion has substantial benefits in terms of succession not only of business management but also ownership. Ultimately control means that employees can be transitioned through the earlier four stages and end up in a position of control – this may be that they take over general management or CEO of the company, it may be that they end up with a seat on the board at some future date however this step is not to be rushed
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Extra Profit Share 20%
Target Profit
Current Profit
Your company Peak Performance
Trust
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Shareholders
Company
Participating Employees
Peak Performance
Trust Shares in Company
extra profits
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Peak Performance Trust – Stage One
Shareholders
Key Employees
Existing Company
Co-Trustee
Peak Performance
Trust
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Peak Performance Trust – Stage Two
Shareholders
Key Employees
Existing Company
Co Trustee
Peak Performance
Trust
buys equity
profit share% $
unit holders
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Case Studies
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LJ Hooker Commercial Central Coast
Winner of the 2010 ESOP of the year award using a Peak Performance Trust.
Award based on substantial reduction in sick days and improved staff retention, as well as a noted increase in performance and participation.
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Ty Blanche - LJ Hooker:
“We have created a more understanding team of people,
and added value to the individual’s performance
congruently.”
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“both financial services and property management referrals from
employees participating in this scheme increased at a higher level
than before. I put this down to their seeing value in contributing to the
company’s bottom line because they will share in the profit.”
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Questions & Discussion
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Craig WestCraig WestSuccession PlusSuccession Plus
telephone: telephone: 1300 665 4731300 665 473
[email protected]@successionplus.com.au
Visit www.successionplus.com.auFollow us on: