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The Employee Ownership Update

Corey Rosen

May 15, 2006

(Corey Rosen)

ESOPs High on DOL Investigations List

On April 25, Virginia Smith of the U.S. Department of Labor's Employee Benefits Security Administration told a meeting of the American Society of Pension Plan Actuaries that ESOP violations were one of five high-priority DOL enforcement projects. (The others are health fraud, improper forwarding of employee contributions to plans, orphan plans, and pension consultant conflicts of interest.) Smith said valuation issues were a common violation, although she also cited plan operational issues. Consultants have noticed an increase in DOL audits, although to date no consistent pattern (or evidence of violations) has emerged.

Tech Firm Survey Finds Equity Plan Shifts

A February 2006 survey of 90 high-tech companies by Culpepper & Associates shows that 38% of the companies are cutting back on who is eligible for equity-based pay, 3% are expanding eligibility to lower levels, and 59% are keeping their existing penetration. Forty-eight percent of the companies are reducing the number of employees receiving stock options, and 44% are reducing the number of options granted. One-third of the companies are replacing some or all of the options with restricted stock while 19% are replacing them with performance shares. Despite a lot of conversation about using stock appreciation rights, only 5% of the companies said they were switching to this approach.

On the ESPP front, 59% of the companies said they were changing their plans, with 26% eliminating the "look-back" feature, 24% reducing the discount, 17% eliminating the plan, and 7% doing something else with it (the numbers add up to more than 56% because some companies make more than one change).

Lessons on Successful Life Might Be Lessons for Successful Companies Too

At the recent NCEO/Beyster Institute Annual Conference, Dr. Laura Nash of Harvard Business School talked about her recent book, Just Enough: Tools for Creating Success in Your Work and Life (John Wiley & Sons, 2005). Based on dozens of in-depth interviews with successful people, Nash and her colleague Howard Stevenson concluded that success comes from achieving "just enough" in four areas that often compete for a person's time and attention:

The balance among these elements shifts over time, so people need to re-evaluate them periodically. The same framework, Nash suggested, would work for employee ownership companies as well. Research has consistently shown, for instance, that employees are most engaged in companies where they say they enjoy their colleagues; can relate strongly to corporate values; believe that they have the opportunity, freedom, and resources to perform their own jobs at a high level; and can succeed in terms of work achievement, whether measured financially, substantively, or in some other way. So companies that provide training, opportunities for advancement, high-involvement decision making, have strong values they actually follow, and have opportunities for fun and celebration are more likely to have engaged work forces than ones with more singular focuses on making money alone, for instance.

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