October 15, 2015
Educating Yourself to Make a Good Employee Ownership Decision
Users of this site often ask us what steps they should take to get educated about making a decision about an employee ownership plan. This article outlines the basic steps we recommend.
- Deciding between ESOPs and individual equity plans: Many people already know that they want to have an ESOP or an individual equity plan—or both. If you want to use employee ownership for business transition, then an ESOP is the logical choice. If you only want to reward certain employees, your business has fewer than 10 or 15 employees, or you are just getting started, an individual equity plan (stock options, restricted stock, phantom stock, or stock appreciation rights) is the logical choice. If your goal is simply to motivate and reward employees, and you are established and have enough employees, then either plan (or both) might make sense. If you are unsure on an approach, the best place to start is the NCEO's book The Decision-Maker's Guide to Equity Compensation. It covers all the plans.
- If you want to sell to employees through an ESOP: The NCEO's book Selling Your Business to an ESOP will walk you through the various tax, financial, planning, and credit issues involved in this transaction. In addition, we periodically have live seminars and Webinars, as well as recorded Webinars, that look at using an ESOP for business transition.
- If you want to get a better understanding of how ESOPs work in general: Our basic ESOP book is Understanding ESOPs. If you are an S corporation, we have a book on the various issues for these companies titled S Corporation ESOPs. We also have a number of Webinars, both live and recorded, that are aimed specifically for people new to this topic.
- If you want to set up an equity plan for employees: After you have read The Decision-Maker's Guide to Equity Compensation, there are more specialized books that can help you take the next steps. The Stock Options Book provides a very detailed look at options; Equity Alternatives: Restricted Stock, Performance Awards, Phantom Stock, SARs, and More looks at restricted stock, stock appreciation rights, phantom stock, and performance shares. It also includes model plan language and grant agreements on a CD.
- Become a member to get questions answered: As an NCEO member, you can call or e-mail any time with questions. This can help you get objective information to help you move forward. It's easy to join online.
- Set up a consulting session with us: If your needs go beyond periodic questions, you can arrange an introductory consultation with an NCEO expert. This can be done by phone, by Skype, or at our offices. Fees for meeting at your site range from $1,000 to $1,500 per day plus travel. We do not set up plans. Our consulting is limited to helping companies decide what kind of plans (if any) make sense, how to decide who should get what equity when based on what conditions, and other basic matters. Because we do not set up plans, we do not have an interest in your doing one thing or another—or anything if employee ownership is not right for you.
- Talk to other employee ownership companies: As an NCEO member, we can put you in touch with other companies who have set up plans to help you learn what their experience has been.
- Get a referral: Employee ownership is a very specialized field. Many more people claim to have the needed expertise than actually do. The NCEO has a Service Provider Directory that can help you identify people who work in this field and see what their credentials are.