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The Employee Ownership Update

Corey Rosen

January 11, 1998

(Corey Rosen)

Employee Ownership Companies Top Best 100 Places to Work List

At least 31 of the 100 companies named as the "Best 100 Companies in America to Work For" have at least 10% of their stock owned by employees. The number is probably higher than this, however, as some of the companies may have broad ownership plans that we have not identified. Topping the list was Southwest Airlines, which is about 13% employee owned through its profit sharing plan. Majority-employee owned TD Industries came in 5th, while W.L. Gore was seventh, Publix was 45th, and Bureau of National Affairs, Inc. was 65th. Non-majority employee ownership companies, with ownership implemented either through ESOPs, other employee benefit trusts, or through broad stock options included Microsoft (8), Hewlett-Packard (10), Moog (13), Procter & Gamble (19), PeopleSoft (20), Cisco (25), Intel (32), Whole Foods (34), CMP Media (40), Herman Miller (51), Great Plains Software (53), Adobe Systems (56), A.G. Edwards (57), Xerox (59), Hallmark (61), QuadGraphics (68), Sun Microsystems (69), Amgen (74), Lowes (80), Starbucks (81), H.B. Fuller (83), Motorola (90), Merrill Lynch (98), and Acipco (99).

The list is compiled by Robert Levering and Milton Moscowitz for Fortune magazine and appears in the January 12th issue. It is based on surveys sent to employees from a larger list of nominees the authors compiled. The 31% or more representation of employee ownership companies is far in excess of the percentage of the number total companies large enough to be on such a list. That statistic can only be roughly estimated, but is probably around 10%.

New Survey on Company Stock in 401(k) Plans

A new survey by Pension Forum reported in the September 1997 issue of Institutional Investor reports that 39% of the responding companies provide their entire match to employee 401(k) plan deferrals in the form of company stock. Another 12.8% match partially in company stock. The survey was sent to 800 large corporate plan sponsors. Company stock is an investment choice for participants in 61.8% of the plans. In 18.3% of the companies, company stock represents half or more of the entire assets of the plan, while in 35.8% it represents 21% to 49%. The stock has generally performed well, exceeding appropriate benchmarks in 46% of the cases and doing as well in 15%.

ERISA Advisory Group Recommends Limits on Employer Stock in 401(k) Plans, But Not ESOPs

The Department of Labor's Advisory Council on Employee Welfare and Pension Benefits Plans, Working Group on Employer Assets in ERISA-Sponsored Plans, has concluded that while there should be no changes in ESOP law, 401(k) and other defined contribution plans should have limits on placed on investments in the employer. Specially, they suggested that (1) there be a limit of 10% of assets in employer real property other than stock, (2) that closely held company plans should be limited to 10% of their assets in company stock or real property, and that (3) in public companies, participants be given the same rights as ESOP participants to diversify their company stock holdings when they reach age 55 and have 10 years of participation in the plan. Current law prohibits employers from requiring employees to invest more than 10% of their total deferrals in company stock or real property.

The working group looked at surveys such as the one reported above that indicate (in their words) an "alarming" percentage of plan assets in company stock. The report notes that the larger the plan, the more likely it is to be heavily invested in company stock. It concluded that "in these enlightened times when the portfolio management concepts of asset allocation and diversification are taught at education seminars...these assets present a danger signal that should not be ignored."

While the working group wants to enact limits in 401(k) and similar plans, it recommended that no changes be made to ESOP law. It noted that most ESOP participants are covered by another retirement plan, that ESOPs are meant to invest mostly in company stock, and that ESOP participants can diversify at age 55. Indeed, the commission believes that 401(k)plans would benefit from adding some of the protections available to ESOP participants.

Copies of the report are available from the Department of Labor or can be found on the Web at its Web site.

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