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The Employee Ownership Update

Corey Rosen

December 15, 2005

(Corey Rosen)

Employee-Owned Company Shines in Katrina's Wake

A lot of organizations didn't come out so well in the wake of Katrina, but 100% ESOP-owned Acadian Ambulance Services in Lafayette was universally acclaimed as heroic. Acadian had long been fanatic about emergency communications and, as a result, had the only reliable communications system in the entire region. Among a great deal of other favorable media coverage, CEO Richard Zuschlag was given honorable mention status by Inc. magazine (December 2005) for entrepreneur of the year. Acadian's 2,000 employees took immediate action after the hurricane. They built a makeshift helipad and set up an outdoor generator. In local hospitals, helicopters started ferrying sick infants in their incubators and healthy babies in whatever they could find that worked. Medics were stationed on the roofs of New Orleans hospitals to evacuate patients, staffed a first-aid station in the Superdome, and established a triage center on the highway. Acadian dispatchers oversaw the coordination of all the emergency aircraft (not just their own) in the area. Critically ill patients were duct-tapped to doors ripped off to allow emergency transportation to helicopters. The National Guard, seeing what Acadian was doing, put them in charge of all hospital rescues. There is a lot more to the story, with hundreds of individual acts of heroism. It's not unusual for Acadian, which transports 250,000 patients per year, getting reimbursed for only 45%. It is a story, though, that the employee ownership community can long relate with special pride.

To see a 13-minute video of interviews with Acadian's employees about Katrina, go to http://www.acadian.com/.

ISS Issues New Equity Guidelines

Institutional Shareholder Services (ISS), the influential proxy advice organization, has changed its guidelines for voting on equity compensation plans to make them somewhat more flexible. Under current procedures, ISS recommends voting against any company whose "burn rate" for equity awards (burn rate is the percentage of total shares made available each year in options or other grants) is currently not more than one standard deviation from its industry norm, provided that is still within 2% of the norm. A company could still get a yes vote if it committed to reducing its burn rate to the industry mean. The new policy allows a company not meeting the standard to get a yes vote if it commits to being within one standard deviation from the mean, provided that is not more 2% above that mean. Current mean burn rates in larger public companies range from 1.5% to 5.0% and in smaller public companies from 2.03% to 6.02%. In any case in which the mean is 2% or less, the "one standard deviation above" rule is trumped by the "not more than 2% above rule," so that the maximum would be 8.03%, for instance, in the highest mean dilution group.

If a company uses full value awards, rather than stock options or stock appreciation rights, the ISS adds an adjustment factor. In low volatility companies, each full-value award would count as four options, ranging down to 1.5 for the highest volatility companies.

ISS is also recommending that one-time transferable options programs, such as those used by Microsoft and Comcast to provide a market for underwater options by allowing employees to sell them to a third party, should be approved under certain conditions, such as that the offer does not include officers and top executives, is properly valued and purchased at a discount, and requires a two-year holding period for sale proceeds for participants. Ongoing programs could be incorporated into plan design subject to shareholder approval.

Details of the proposal, and mean burn rates and standard deviations, can be found here (PDF format).

IRS Allows Delay in Reporting and Withholding on Deferred Compensation

In Notice 2005-94, the IRS announced it is suspending the withholding requirements for 2005 with respect to deferrals of compensation covered by the deferred compensation rules of Section 409A of the Internal Revenue Code. Service providers also do not have to determine the amount that may be due under the new rules in 2005, but will have to pay them in 2006 once the employer can provide information telling the employee what is due. The IRS is working on regulations to provide guidance for employers for 2006.

Wisconsin Employee Ownership Program

The University of Wisconsin Employee Ownership Management Program will hold its next session in spring 2006.

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