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The Employee Ownership Update

Corey Rosen

May 10, 2005

(Corey Rosen)

NCEO Survey Shows Continued Uncertainty About ESPP Design

In a just-completed NCEO survey of 117 companies, 66% said they will not discontinue their ESPPs in light of new accounting rules, while only 6.5% have decided to do so. The rest are "still thinking about it." Just under half the respondents (45.7%) are still deciding how or if to modify their plans, while 30.4% will make no changes. Changes would primarily involve shortening the look-back period or reducing the discount.

Online results of the survey are available for $25 to members and $35 to non-members.

Company Stock in ESOPs, 401(k) Plans Still Being Litigated

Although press attention to the matter has subsided, there are still dozens of lawsuits in various stages of development over company stock in 401(k) plans and ESOPs (mostly the former). Seattle law firm Keller Rohrback has been the most aggressive litigator by far, with about two dozen cases.

So far, no compelling legal conclusions can be drawn from the cases, with most decisions having been made on whether suits can proceed. One major case, Enron v. Tittle, has settled.

Forced Ranking of Employees a Bad Idea, Lawler Tells NCEO Meeting

At the NCEO annual conference in April, keynote speaker Ed Lawler, the dean of organizational development scholars, said that he is particularly unenthused about "forced ranking" of employees, a practice made famous by Jack Welch at GE, where all employees had performance reviews and the bottom 10% were fired every year. Welch argued it made companies get rid of dead wood, but Lawler argued that his research showed some strikingly negative effects. Employees tended to be very competitive with one another, fearful of helping a colleague because it might elevate their performance rating over their own. Managers said they sometimes hired employees they knew they would fire just to meet the numbers. These and other problems meant the system created more problems than it solved. While GE has been a successful company, Enron also used forced ranking, Lawler pointed out.

In general, Lawler told the audience that the most productive organizations practice a very open-book management style of information sharing and push decision making down to employees and employee teams whenever possible. In fact, Lawler's findings were very much in line with what researchers have found about what makes employee ownership companies successful. Lawler's findings are discussed in his new book Treat People Right.

Author biography and other columns in this series

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