The Employee Ownership Update
March 25, 1999
Finland Moving Quickly on Employee Ownership
According to Erkki Helaniemi of Alexander Corporate Financing in Finland, 127 Finnish companies now offer stock options to most or all employees. Employees are taxed on the options only upon exercise, when they pay ordinary income tax rates. The company, however, does not get a tax deduction. Until recently, Swedish law taxed options on grant, but that was changed last year and Swedish companies are now starting to move to grant broad-based options. There is also an effort underway in Finland to allow profit sharing plans to invest primarily in company stock.
Trinidad Looking at Ownership Legislation
According to Hubert Alleyne of the International Communications Network, Trinidad is now considering legislation to encourage employee ownership. Alleyne previously worked for the Royal Bank of Trinidad and Tobago, a pioneer in employee ownership in Trinidad. Alleyne says that there are now 25 companies offering broad employee ownership plans, most of which provide a tax-favored way for employees to invest in their companies under case-by-case rulings. Alleyne says that about 60% of the employees take advantage of the plans in these companies. U.S. companies in Trinidad have asked the government to provide a clear statutory framework so that they can include their employees in their U.S. plans.
Another 100% ESOP Buyout
Another very large company has been bought by a 100% ESOP. Nypro is a half-billion dollar contract manufacturer of plastics injection molding. It employs 5,500 people worldwide, including 2,500 in the U.S. who will be eligible for the ESOP. The company is looking at ways to include overseas employees as well. The privately held company could easily have gone public, but Gordon Lankton, the CEO and former majority shareholder, said that Nypro management wanted to preserve the company as a private enterprise that could avoid the "distraction of day-to-day stock price concerns." Nypro is the second employer of this size (Ferrell Companies is the other) to convert to an ESOP; both are leaders in their industries.
Developments at United Airlines
There has been much hand-wringing among stock analysts over employee influence in the CEO selection process at United Airlines. These analysts will wring even more now that employees will be given a voice in how executives are compensated. Under a new system, executive compensation will depend partly on meeting financial objectives and partly on how well "people objectives" are met. Attainment of these objectives will be based on employee surveys. Analysts have worried about employee influence at United since the outset, but the company has consistently outperformed their expectations.
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