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The Employee Ownership Update

Corey Rosen

February 19, 2004

(Corey Rosen)

IASB Issues Equity Accounting Exposure Draft

On February 19, the International Accounting Standards Board (IASB) issued an exposure draft of its new International Financial Reporting Standard 2, Share-based Payment. The standard applies to the issuance of equity or equity-equivalent plans (such as phantom stock) to employees and other providers. The proposal does not contain any apparent surprises or significant changes from what the IASB has indicated it will do on this issue. While some people had hoped for an exemption for share purchase plans, the draft treats all equity plans alike. Equity awards must be valued at grant using a formula to estimate their present value. Companies must make adjustments for the number of shares that eventually vest by "adjusting the number of equity instruments included in the measurement of the transaction" to reflect the number that eventually vest. Cash-settled share-based payments are accounted for at grant but remeasured on each reporting date to reflect changes in value. Copies of the three-volume draft are available for $23. Email publications@iasb.org for details.

South Africa, Korea Plan Moves to Encourage Broad-Based Ownership

Both the South African and Korean governments have indicated they plan to introduce legislation to encourage broad-based employee ownership. The Korean plan would provide for tax benefits for discounted share purchase plans; South Africa would end the current taxation of shares or options received by employees when they are granted (as opposed to when gains are realized). The tax incentive would be capped so as to encourage broad ownership.

Bi-Mart Sold to Employees

Bi-Mart, a 3,000-employee chain of 64 membership discount stores in Washington, Oregon, and Montana will be sold to an ESOP. The company could have been sold on the market, but its owners, who included the venture capital group Endeavor Capital, preferred that employees take over. The transaction is one of the largest majority ESOP sale sin the last few years.

Employee Owners More Pleased With Their Financial Situation

Data from the General Social Survey from the National Opinion Research Center show that 32.1% of employees with stock or stock options in their company say they are more satisfied with their financial condition, compared to 23.1% of those without company stock. More strikingly, 61.1% said their financial situation was getting better in 2002, compared to 44.6% of those without stock. That is particularly notable given that the survey was done in 2002, when the market was still way down. The differences do not depend on the form of employee ownership. The data are based on surveys of 1,242 working adults conducted in 2002. Joseph Blasi and Douglas Kruse of Rutgers and Richard Freeman of Harvard, all affiliated with the Shared Capitalism Project of the National Bureau of Economic Research, organized the questions and their analysis. The National Center for Employee Ownership was one of the sponsors of the survey questions, along with the Shared Capitalism Project, the Beyster Institute, the ESOP Association, and the Employee Ownership Foundation. The Shared Capitalism Project receives support from the Rockefeller and the Russell Sage Foundations. The larger GSS and NOS surveys, which involve hundreds of questions, were primarily funded by the National Science Foundation.

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