Employee Ownership Blog

The staff of the Securities and Exchange Commission (SEC) has recommended that the SEC commissioners vote to delay by six months the starting date for implementation of requirements that companies must expense options, and the commissioners are expected to soon do so, according to the Wall Street

One of the trickiest issues for ESOPs is how to balance executive equity incentives with an ESOP. The problem has become more complicated as more ESOPs become 100% owned by the plan.

A 2005 Top Five survey of 42 major technology companies in Silicon Valley reports that 74% are considering replacing some of their options with other long-term incentive vehicles, with the same number considering reducing the size of their grants.

Most companies make a point to communicate their ESOPs as a retirement plan. But most ESOP participants will get distributions well before retirement.

In Staff Accounting Bulletin No. 107, the SEC staff has issued guidelines intended largely to assure companies that it will provide some leeway in implementing FAS 123(R) to allow for a variety of "reasonable" interpretations. Most significantly, it will allow a number of valuation formulas.

On March 12, 2005, the IRS issued a correction to regulations issued in December designed to curb abuses of ESOPs in S corporations.

Does your ESOP come from a box? It's possible to buy a "standard" ESOP plan from developers of such documents, fill in the blanks, and send it off to the IRS.

According to data from the Department of Labor's Private Pension Plan Bulletin 2004, the rate of return for ESOPs with more than 100 participants during the 1990s was about 10% better than for 401(k) plans with more than 100 participants.

Quad/Graphics, based in Pewaukee, Wisconsin, is substantially owned by its 12,000 employees through a profit sharing plan.

ESOP companies must provide participants the option to diversify up to 25% of the stock in their accounts when they reach age 55 and have 10 years of plan participation. This increases to 50% at age 60. According new NCEO survey data, a majority of employees choose not to diversify.

President Bush is talking a lot about the "ownership society," although employee ownership is clearly not part of that vision. But employee ownership will be on the agenda for Congress in a number of probable new and revived bills.

As part of a survey the NCEO is conducting on ESOP repurchase obligation, 40% of the 256 respondents indicated that the ESOP owned 100% of the stock, while another 26% were more than 50% owned by the plan.