The Employee Ownership Update
November 22, 1998
Arthur Andersen Survey Shows Global Share Plans IncreasingA new survey of the 1,250 largest global companies by Arthur Andersen shows that 43% operate global share plans for executives, while 27% operate global share plans for all of their employees. Another 7.75% plan to introduce broad-based plans in 1999. The plans are most prevalent in the UK and the U.S. and very rare in the Asia-Pacific region. About half the plans (48% in North America, 57% in continental Europe, and 24% in the UK) are designed to mimic the plan structure of the company's domestic plan; another half use an "umbrella" approach in which the plan follows the basic structure of the domestic plan, but with variations in each country based on laws and customs. Few companies have a separate plan for each country.
Among all-employee plans, 80% of the companies in continental Europe use stock purchase plans and 36% an option feature (plans can have more than one aspect), while in the UK, 82% of the plans have a stock option feature and 24% a share purchase feature, and in North America, 65% have a purchase feature and 56% an option feature. Free shares are used in 12% to 14% in all countries.
Copies of the 25-page report are $225.00 from Arthur Andersen.
Too Much of a Good Thing?Can an ESOP company be too successful? Gregg Kelly of Orthodyne Electronics isn't complaining about how well his company's ESOP has performed, but he does worry that some employees will leave to take advantage of the huge run-up in their stock. Orthodyne set up its ESOP in 1985, with the plan buying 14% of the semiconductor equipment manufacturer's stock for $600,000. By 1997, when the company did a second ESOP, it cost $12 million to buy 19% of the company. Account balances of the average employee had grown to about $300,000 for those there since 1986. The new ESOP provides about $100,000 per employee based on the face value of the loan.
Kelly said that a few people have left early to get their distributions. The second ESOP will not start repurchasing shares until the loan is repaid eleven years from now, which Kelly hopes will encourage people to stay. Other companies have dealt with this problem by arranging for in-service partial distributions so that people can get access to some of their money earlier.