The Employee Ownership Update
May 15, 2008
Indiana Initiates ESOP Support ProgramIndiana State Treasurer Richard Mourdock has introduced a program to encourage banks to loan to ESOPs. The state will buy certificates of deposit from those institutions at reduced rates, increasing their funds available to loan. Banks then would loan these funds to new or existing Indiana ESOP companies for 4.25% (this is the current rate; it will change as interest rates change). The program will cost the state $500,000 annually, but Mourdock (himself a former ESOP participant) believes that the program will create a net increase in state revenues because ESOPs tend to keep jobs and business activity in the state.
Hinchey, Rohrabacher Introduce Pro-ESOP Resolution in CongressMaurice Hinchey (D-NY) and Dana Rohrabacher (R-CA) have introduced House Concurrent Resolution 333, which states, "Congress expresses its continued support for employee stock ownership plans." The resolution notes that "there have been ample data collected by objective research indicating that the vast majority of corporations sponsoring employee stock ownership through ESOPs are high performing companies that, among other indicia of high performing companies, have better sales, are more sustainable, pay better, and provide more retirement savings compared to similar companies that are not employee-owned." Hinchey is one of the more liberal members of Congress and Rohrabacher one of the most conservative.
Many Compensation Consultants Ignore Research Supporting Broad-Based Equity PlansA frequently repeated and never-documented claim by many compensation professionals is that broad-based equity plans don't work. Writing in the May issue of Workspan, the magazine of WorldatWork, for instance, Steve Broadbent and Tom Chisolm of Clark Consulting state that "there is no empirical data linking the use of broad-based, equity-based grants below the top-tier of executives to a company's performance." A quick Google search would have shown these experts how inaccurate that statement is. There is, in fact, ample evidence linking broad-based equity grants to improved corporate performance, while equity grants to top executives produce at best mixed results.
It's hard to say whether the continuing bias is the result of simple ignorance, a self-serving desire to tell executives (who pay compensation professionals' bills) that only executives matter, or a too-facile assumption that individuals below top executives rarely affect how the company does. The continued existence of this bias, however, remains a major barrier to more progress on broad-based grants.
In a refreshing break from this conventional wisdom, the Global Equity Organization's recent annual conference in San Francisco featured keynote speakers (a leading member of corporate boards and a venture capitalist) who strongly backed broad-based equity programs, citing extensive research on their effectiveness. The theme was picked up at other conference sessions as well.
Take the NCEO Survey on Equity Compensation in Closely Held CompaniesThe NCEO is conducting a survey of equity compensation practices in closely held companies. If your company provides stock options, phantom stock, stock appreciation rights, restricted stock, or similar awards to one or more employees, we hope you can take our new, brief survey on this issue.
Companies that complete the survey will receive an exclusive preview of the results and will be able to buy the final results for 50% off the normal price ($300 to non-members and $150 to members). This will be the only survey that covers equity compensation practices in a broad range of closely held companies, but we need active participation to generate useful results.
To take the survey, click this link. Survey results will be anonymous-no company will be identified or identifiable.
Winning Workplaces Webinar on Employee OwnershipWinning Workplaces is a nonprofit organization that, along with the Wall Street Journal, names the top 15 workplaces for companies with fewer than 1,000 employees. Five of the 2007 winners are employee-owned (all NCEO members), and some of the remaining 10 are considering setting up plans.
Two of the winners, Reflexite and Phelps County Bank, will present a Winning Workplaces Webinar on "Building an Employee Ownership Mentality" on May 21 at 9 a.m. Central Time. The cost is $75. For details, go here.
Author biography and other columns in this series