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The Employee Ownership Update

Corey Rosen

May 31, 2007

(Corey Rosen)

ESOPs Continue Growth in 2006

Based on data from the Department of Labor and the IRS, the NCEO estimates that in 2006 that the number of ESOPs and stock bonus plans grew by approximately 5% over the 2005 numbers. Plan assets grew to approximately $675 billion, up about 12% from the prior year. We estimate that about 800 new plans were set up in 2006, but approximately 350 were terminated. As a result, we estimate that there are about 9,650 ESOPs and stock bonus plans with about 10.5 million participants. Some of these plans, however, have no current assets.

New Data Show About One-Third of U.S.-based Multinational Equity Compensation Companies Make Foreign Employees Eligible for Options

A new survey of 291 U.S.-Based multinational companies that offer equity compensation to their non-U.S. employees shows that 30% of the respondents make all employees eligible for stock options or stock appreciation rights (SARs) awards while 62% offer employee stock purchase plans (ESPPs). About 10% of the companies make non-exempt employees eligible for other forms of equity as well, most commonly restricted stock units. The median participation in the ESPPs by non-U.S. employees was 15%. Not all employees eligible for options or other awards will actually receive them. About two-thirds of non-exempt employees eligible for non-option grants actually receive them, while about 70% of those eligible for options do, and one-third of those eligible for SARs do.

There has been less change in eligibility than many people expected. About 45% of the companies have not changed the eligibility for their option plans since the plans' inception. Among those changing their plans, slightly more have broadened eligibility than shrunk it. When asked the question in a different way, a somewhat different response emerges, however. About 24% of the companies overall say they have limited eligibility for equity to top executives in response to changes in accounting rules, although it is not possible to tell from this what percentage of these companies had granted truly broad-based equity compensation before as opposed to just having plans in place that in theory would have allowed them to grant equity to all workers.

In China, 50% of the respondents said that they provide options or other equity awards to most employees, perhaps reflecting the strong interest in broad-based ownership plans in that country.

The survey was conducted in 2006 by the National Association of Stock Plan Professionals and Deloitte Tax LLP.

New Survey on Extent of Employee Ownership in U.S.

An online survey of 2,373 U.S. adults conducted by Harris Interactive between April 11 and 13, 2007 for the Wall Street Journal Online found that 13% of those surveyed said that their company provided stock as a benefit (presumably primarily though ESOPs or 401(k) plans), while 9% said they received stock options. The stock options number is almost precisely the same as the number reported in the 2006 General Social Survey (GSS). The number receiving company stock is slightly different. The GSS data report 20 million employees have company stock; the poll indicates that 18.8 million do, although the questions are not phrased exactly the same way.

Termination Rate for ESOPs Seems to Be Slowing

In the past five years, ESOP terminations are running about one-third below their rate in the 1990s. While it is too early to tell if this represents a long-term trend, it also semes unlikely simply to be a statistical fluke. If the trend turns out to be more than an anomaly, it is likely a result of legislation allowing S corporations to have ESOPs, which makes it both more attractive and more practical to remain an ESOP over time.

Rebuilder of Bay Area Freeway That Collapsed ESOP-Owned

The collapse of a section of freeway in the San Francisco area in April made national news. The state of California contracted with employee-owned C.C. Myers, Inc. to repair the critical road, offering bonuses if the project was finished early. By late May, the road was reopened, several weeks ahead of initial projections.

Author biography and other columns in this series

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