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How to Choose Employee Ownership Consultants

Shakespeare may have promised that "the first thing we do, let's kill all the lawyers" (King Henry VI, Part 2), but in setting up an ESOP, equity compensation plan, or other employee ownership plan, first you will hire them. And, depending on the type of plan, you will hire valuation consultants (appraisers), plan administrators, and possibly others as well. This assemblage of expertise will not come cheap, but these experts will save you the hassle, time, and unwarranted risk of trying to figure this out yourself.

  1. Overview
  2. Gauging Someone's Qualifications
  3. Choosing a Lawyer or Plan Design Expert
  4. Choosing an Appraiser
  5. Choosing an Administrator
  6. Other Parties

1. Overview

Where to Find Experts

Our Service Provider Directory lists hundreds of NCEO members who provider services in this field. (NCEO members also have access to our ESOP Lender Directory in the members-only area of our site.) Although these are all NCEO members, we do not vouch for their qualifications or approaches. For that you need to probe further, as described below.

Who You Need for ESOPs

When setting up an employee stock ownership plan (ESOP), you need at a minimum:

Other parties are frequently hired as well:

This may seem like a lot. However, if you are using an ESOP to buy out an owner, many of these same people would be needed if you chose some route other than an ESOP, plus you might need a business broker, who would charge a percentage of the transaction.

Be sure to read our article on Red Flags in ESOP Transactions, which provides a list of key issues to watch out for and ways to avoid them.

Who You Need for Equity Compensation Plans

The guidelines for stock option plans, stock purchase plans, and the like are not as strict as for ESOPs, but you will still need qualified people:

With a broad-based equity plan, some companies understand the technical issues sufficiently enough to effectively design, implement, and administer their stock option plan mostly in-house. In fact, many companies have had equity plans for executives in place for a long time and are, therefore, familiar with the operation of the plan. Although setting up and maintaining a plan does not necessarily require the same degree of technical assistance as an ESOP, the advice of experienced, knowledgeable professionals is often necessary and desirable to design a plan that maximizes benefits and best meets corporate objectives. Most commonly, assistance is needed in designing, administering, and communicating a stock option plan.

Outside the U.S.

The above comments apply to U.S. plans. If you are setting up a plan outside the U.S., then the very type of plan you have will depend on what is possible in that country; for example, the U.S. ESOP is largely unique to the U.S. However, stock options, for example, are more alike from country to country.

A multinational corporation wishing to set up a stock plan or plans covering employees in multiple countries must be careful to comply with the host of tax and regulatory issues that will arise; working with experienced legal counsel is crucial here.

Interview Several Firms and Check References

In picking a professional advisor, we recommend that you interview several different firms, checking references for each, before hiring one.

Don't Limit Yourself to Local Firms

Remember that you need not hire someone in your state, let alone your city. This is a specialized field, and it is common to hire firms located hundreds of miles away, especially if you are not in a major metropolitan area (New York, Chicago, Dallas, Los Angeles, San Francisco, etc.). What matters is hiring an expert. It is not at all like hiring a local personal injury attorney after you get in a car accident, or hiring a local CPA to keep your books in order.

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