How to Choose Employee Ownership Consultants
6. Other Parties
Aside from the necessary parties such as attorneys, there are other experts you may need or want, such as feasibility study experts, investment bankers, and organizational development experts.
Ownership Culture Consultants
To help create an ownership culture, you may want to hire people to help you with plan communications and employee participation structures. There is a growing number of people with specific organizational development experience in employee ownership companies, although people from conventional management consulting organizations may be able to provide useful advice as well. The key to hiring these people is to avoid those with a prepackaged program or those who will come in and impose programs from above. The best ownership culture consultants work with you and an employee team to help the company's employee owners develop and implement their own programs. The consultants serve as coaches and advisors. There is something very unsettling to employees to be told their company will now become more participative by having a participation structure imposed on them by an outsider.
Financial Advisors and Trustees for ESOPs
- Financial advisors. In assessing an ESOP, you will want to do a feasibility study. This will help determine whether the amount you plan to put into the ESOP is affordable and fits within the legal limits for these plans. Working with your administrator, you may be able to do this internally, but you can also hire financial advisors to help you. ESOP expertise is helpful here, but not always necessary. In large and complex transactions, especially where there are multiple investors of which the ESOP is one or equity capital is needed, you will probably want an investment banker. These advisors will help structure the transaction so that the various investors will agree to it and help locate sources of capital (and sometimes provide it themselves). They usually charge a percentage of the transaction, often in the five to ten percent range. The percentage declines with the size of the deal.
- Trustees Strictly speaking, the trustee of an ESOP is not a consultant and often will not even be an outsider. Because the trustee is so integral to the operation of the plan, however, deciding how this person will be selected and what the role of the trustee will be is an essential part of putting together the ESOP team. An outside trustee provides more of an assurance that decisions made for the ESOP will be independent and thus may provide some protection should legal battles arise. Outside trustees may also have special expertise that can be useful in operating the plan. Trustee services are expensive, however. You will pay for more than their time; in fact, most of what you pay will, in effect, be insurance costs. One compromise approach is to hire an independent fiduciary when a complex or conflicted situation comes up where the inside trustee is not comfortable with or appropriate for the decision. If an inside trustee is chosen, it can be anyone, but usually is either an officer, such as a CFO, or a committee of management and/or non-management employees. The board usually appoints the trustee, but, in some cases, some or all trustees may be elected by employees. Whoever is the trustee should be indemnified and insured by the company and must act exclusively to protect the interests of plan participants. Because of this fiduciary requirement, it is not advisable for sellers to an ESOP to act as trustees.
Equity Compensation Issues
- Companies with broad-based equity compensation often develop a strategy to communicate the plan when it is rolled out, at the time of grant, and for other key events. An experienced consultant can be very useful in designing this type of program, providing advice on the nature and content of these communications.
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