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The Employee Ownership Report

NewsletterConcisely written for leaders in employee ownership companies and for service providers in the field, the NCEO's bimonthly newsletter, the Employee Ownership Report, is the most efficient way to stay informed about legal issues, current events, best practices, breaking research, management approaches, and communications ideas for employee ownership companies.

Available exclusively to NCEO members, the Employee Ownership Report is delivered in hard copy and all issues back to 1997 are available in the members-only area of the Web site.

Nonmembers are invited to read the sample article below from the current issue of the newsletter. Every time a new issue appears, the sample article on this page will be replaced by one from the new issue. Join online for only $90 to receive the Employee Ownership Report and all our other membership benefits.

You also can read a sample issue of the entire newsletter (July-August 2011).

Sample Article from the May-June 2015 Issue:

Communicating Value and the Power of the Multiple

Communicating and connecting core elements of your business to stock value and the "power of the multiple" are essential for any company that wants to develop an ownership culture. Employees need to understand how key aspects of your company connect to one another and help determine company success. Doing this effectively will provide every employee-owner with a better understanding of how your business works and the roles they play in it.

Identifying Your Anchor Concepts

First, your communications team should work on identifying the "anchor concepts" at your company. For example, employee-owners need to know how their jobs connect to their departments' goals, how their departments contribute to the health of the company, how company performance changes the stock price, and how the stock price affects the value of employee accounts. Your team might use some or all of these or come up with your own, but it's important that these concepts can be measured and communicated clearly.

Start by picking the most important anchor concepts at your company by organizing a group of employees that represents the whole workforce, including middle management and executives. Have the group brainstorm the answers to this question: "What do people need to understand to be effective employee-owners at this company?" Use a white board or sticky notes to keep track of each and focus on generating lots of ideas. Once all possible concepts have been gathered, you can consolidate similar ideas into groups and remove those that just don't fit.

Value and the Power of the Multiple

Next, illustrate how your key concepts connect to one another. For the purpose of this article, we will just focus on company performance and stock value, which is the most important scorecard for participants. The process described here can be used for any of your core concepts. Here are a few things your team will want to do when discussing valuation:

Outline the concepts and methods: The details and complexities of income-based methods and marketbased methods of valuation can be overwhelming, but the basic concepts aren't difficult. One ESOP company used a slide show to announce a new valuation that explained the income approach as "how well are we performing" and the market approach as "how we compare to similar but publicly traded companies." Another way to make these concepts accessible is by using the home appraisal analogy. An appraiser would look at what comparable homes are selling for in the same neighborhood and estimate the value of the home based on future rental income.

Explain the basic idea behind valuation: The most important concept for employees and work groups to understand is the power of the multiple as it applies to your company's earnings. The power of profit is huge. When employees understand that a buyer or investor will pay a much greater amount for a company's annual earnings than the company will generate in the next few years, they can begin to understand how their small ideas and positive actions influence stock value. People should understand that, all else equal, every dollar a company's earnings goes up causes a several-dollar increase in the value of its stock. If the multiple is 5 to 1, then an idea that saves or earns the company an extra $1,000 dollars a year is actually worth $5,000 in value. Ten ideas that increase earnings by $1,000 dollars actually create another $50,000 in value. People should also know that the opposite is true when the company loses money. A decrease in earnings is also multiplied! This is a very powerful concept for engaged employees to understand, and it helps illustrate how their decisions and many small ideas can maximize share value.

Bring It on Home: Try using excerpts from an actual valuation report to communicate these concepts more clearly. Show employees the ratios that the valuators used and the effect increasing profit or paying off debt had on stock value. Concrete numbers from your own company are more readily understood and used by employee-owners.

You can use the same building blocks for any anchor concepts your team comes up with. Say one key concept is reducing shipping errors. First, define what is meant by this. An error might mean shipping the wrong product to a customer. This means that your company not only needs to cover the cost of shipping the correct item a second time but also needs to expedite it to satisfy your customer. Multiple errors can be very costly and start to add up. Show how shipping errors are tracked and measured. Then explain the relationship between your company's shipping errors and its earnings each year. You might consider breaking employees into teams to show how this plays out in terms of your expenses and profits. Ask employees to generate ideas on reducing shipping errors. Finish with a report on what ideas will be pursued and what impact they might have on your company's overall performance as you track these improvements over the course of the year.

More ideas and examples are in the NCEO's ESOP Communications Sourcebook and Fundamentals of Ownership Culture.