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The Employee Ownership Update

Corey Rosen

September 28, 2007

(Corey Rosen)

New Study Documents ESOP Account Balances

The NCEO has just completed an analysis of Form 5500 retirement plan filings filed by ESOP companies. The Form 5500 data is prone to considerable reporting and transcription error and should be used with caution, but many of the results described below are in accord with prior research, with our experience, and with best estimates from practitioners in the field.

Among the companies studied, the average value of plan assets per participant is approximately $46,000. This compares to the average of $47,680 reported for the state of Washington in 1995. (See Wealth and Income Consequences of Employee Ownership by Peter Kardas, Adria Scharf, and Jim Keough, published by the NCEO in 1998.) It also compares to an average 401(k) account balance in 2005 of $58,000 computed by the Employee Benefit Research Institute/Investment Company Institute. However, of that 401(k) balance, typically only one-third or less is attributable to company contributions. Moreover, 401(k) account balances are strongly skewed towards to higher earners, and only about 70% of those eligible to participate in 401(k) plans do. This group tends to be lower-paid than those who do participate. ESOP account balances, by contrast, are entirely from the company, cover all eligible employees by definition, and are no more skewed toward higher-paid employees than salary would indicate. Moreover, ESOP companies usually have other retirement plans as well. In short, the data indicate that ESOP participants receive a much larger benefit from their employers than non-ESOP participants.

SEC Proposes Significant Changes to Rule 144

The SEC is proposing major changes to Rule 144 under the Securities Act of 1933. Most significantly, the SEC proposes shortening from one year to six months the minimum holding period for resales of "restricted securities" of "reporting companies." It also proposes that restricted securities of issuers that are not reporting companies would continue to be subject to the current one-year holding period. After one year, all resale restrictions would end for non-affiliates of both reporting and non-reporting companies.

New Study Reports on Growth of Employee Ownership in Europe

Two recent surveys find that employee ownership, while still comprising a small part of the European economy, is growing. The 2007 report from the European Foundation for the Improvement of Living and Working Conditions, Financial Participation of Employees in the European Union: Much Ado About Nothing? reports on two surveys, the CRANET study from Cranfield University of European companies with more than 200 employees, and the European Working Conditions Survey (EWCS) of more than 16,000 employees. Both were done in 2005. The CRANET study was by email and had a 15% response rate; the EWCS study was based on face-to-face interviews.

Among large companies in the CRANET study, about 40% offer at least some employees stock plans in the U.K., France, and the Netherlands, while 32% do in Ireland, Belgium, and the Scandinavian countries. Plans are much less common elsewhere. There are no data on how many of these are broad-based. Larger companies are more likely to offer plans, negating the widely held economic theory that the bigger the company, the less rational it is to offer company-based incentive plans. Companies with stock plans are significantly more likely to be open about various aspects of the company as well as to be more participative in day-to-day work practices.

In the EWCS study, among companies with more than 250 employees, the highest rate of participation was 8% of employees in Ireland, 7% in France, 5% in Belgium and Sweden, 4% in the U.K., and 3% or less in all other countries. While these numbers are small, they have grown by at least 2% in every country except the U.K. since 2001.

Five of Top Small Workplaces Are Employee Ownership Companies

Five of the 15 winners of the 2007 Top Small Workplaces award have significant employee ownership plans, and four are majority employee-owned. The winners were announced in a special section of the October 1, 2007, Wall Street Journal. Winners were selected from about 850 nominations by Winning Workplaces, a nonprofit organization in Evanston, Ill. Winners were selected on a variety of issues, including teamwork, investment in employees, participation, and other successful people practices. Companies had to employ 500 or fewer people and have revenues of $200 million or less. The winners, four of whom are NCEO members, were:

The first four on the list above are NCEO members.

Nominate Yourself for the NCEO Board

Annual elections for the NCEO board will be held in January. Board members meet in person once a year before the annual conference, in periodic call-in meetings, and on occasional ad hoc committees. They serve at their own expense. The board's primary function is to provide feedback on new projects. To run, submit a 75-word statement describing your qualifications and reasons for running to Corey Rosen at crosen@nceo.org by December 1.

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