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Great Ideas from the NCEO's 2018 Annual Conference

An NCEO Issue Brief

(Digital Version)

by Corey Rosen

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With more than 130 panels at each NCEO annual conference, there are lots of great insights about employee ownership. This issue brief compiles a selection of great ideas from a wide variety of panels on communications and culture, fiduciary issues, plan operations, and transaction and valuation issues at the NCEO's 2018 annual conference in Atlanta, GA.

Publication Details

Format: PDF, 36 pages
Edition: 1st (December 2018)
Status: Available for electronic delivery

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Communications and Culture
Creating Safe Cultures for Employee Involvement
Hiring and Onboarding New Leaders at Torch Technologies
How the Rules of Improv Can Improve Your Culture and Business
Sharing Your ESOP Story With Congress: An ESOP Company Perspective

Fiduciary Issues
The Changing ESOP Landscape: Collateral Effects of DOL ESOP Litigation

Plan Operations
Best Practices to Help Trustees Sleep at Night
Basics of Electronic ESOP Notification Rules
Don't Put Your ESOP on Autopilot
From Year-End to Valuation to Administration: Practical Guidance
Rules of the Road for Rebalancing and Reshuffling Terminated Participant Accounts
Releveraging Your ESOP
Preparing for Audits and Investigations

Transactions and Valuation Issues
Anatomy of an ESOP Transaction
ESOP Company Acquisition Strategies
ESOPs and Acquisitions: A Case Study of Three Transactions
Mergers and Acquisitions Involving ESOP-Owned Companies
Fairness Opinions
LLC Structures and ESOPs
What Makes for a Good Business Forecast?


From "Don't Put Your ESOP on Autopilot" (table omitted)

Companies, as plan sponsors, make many plan design decisions (e.g. distribution policies) when implementing an ESOP and then often automatically follow those procedures as the business, employee demographics, and environment change. Company leaders may not realize that plan provisions can be changed, within some limits, or may not fully understand how changes may benefit the company or employees. The result is that plans can be put on autopilot, failing to adapt to the changing needs of the company. A few key areas that often need to be readdressed at some point during the life of an ESOP are benefit levels, share allocations, distribution rules, and handling repurchase obligation, as outlined in table 1.

A number of things can make what seemed like sensible procedures in these areas at first seem less favorable now. These can include:
  • Changing share price
  • Size and demographics of the workforce
  • Company culture
  • Company cash flow levels
  • Acquisitions of other companies
  • International employee groups
  • Operating capital needs
  • Non-ESOP repurchase obligation
  • Diversification

For instance, if your share price is increasing rapidly, and your distribution policy says that distributions will not begin until the latest possible starting date, the repurchase obligation will be larger than if you started distributions sooner. Conversely, operating capital needs might dictate that an early distribution policy might not be sustainable. Or to take another scenario, if your workforce increases significantly, there may not be a lot of new shares available for allocation to these workers unless you make some changes to how your plan operates.

The good news is that plan rules are not immutable. A written distribution policy, for instance, can live outside the plan document and allow for discretion within certain parameters. A company might, for example, have a policy to pay people out more quickly than legally required provided that it has the cash flow to do so without threatening the stability of the firm. Companies can add provisions like account rebalancing and segregation to get shares to newer employees more quickly. By reviewing your plan periodically with your advisors, you can identify optimal strategies for the current situation, and modify your plan without violating applicable laws and regulations.

As your ESOP matures, you may find that the benefit level it is providing is more or less than intended. This may be a result of adding more employees more quickly than planned, or the share price changing more or less than planned. For instance, if your payroll goes up quickly but you are making the same total contribution to the ESOP every year, the benefit level may shrink, and new employees may not get many shares (of course, this is also a function of how much the share price is increasing, so no one factor can be viewed in isolation). You may address this by having the company make additional cash contributions to the plan, or you may consider account segregation to get shares to newer employees.