The Employee Ownership Update
July 15, 2008
Innovative Ideas in CompensationThe Wall Street Journal ran a story on July 7 featuring NCEO member and ESOP company Skyline Construction. The San Francisco-based company lets its 15 top managers decide how much of their pay will be fixed versus incentive-based. Most have chosen incentive pay. The plan is structured so that those choosing incentive pay will normally do better in return for taking the risk.
Over the years, we have encountered a number of companies offering innovative practices in compensation. For instance, Netflix lets employees choose between getting options or other forms of compensation. HCSS, a fast-growing, industry-leading software company that serves the construction industry has a three-tier reward system that gives all employees short-term incentives through a cash bonus program, medium-term incentives through stock appreciation rights (SARs), and long-term rewards through an ESOP. HCSS was a 2008 NCEO/Beyster Institute Innovations in Employee Ownership Award winner.
Sovereign Bank Employees Sue Over ESOPESOPs are more common in the banking industry than any other, and that may not be such a good thing right now, at least for those banks heavily into subprime mortgages. Sovereign Bank is being sued by a group of employees over the company's ESOP and company stock in the 401(k) plan. About 26% of the two plans' combined assets were in Sovereign stock, which has fallen sharply. One unusual aspect of the ESOP was that the internal loan (the loan from the company to the ESOP to buy company stock) carried a 10% interest rate, much higher than rates charged by other banks that have internal ESOP loans.
Restricted Stock Practice Guide ReleasedThe Certified Equity Professional Institute at Santa Clara University has released its 2008 research project focusing on restricted stock and restricted stock units as part of its ongoing GPS | Guidance, Procedures, Systems project. This report is the culmination of extensive interviews, in-depth analysis, and significant technical input. This research provides tools to help:
- equity compensation professionals evaluate and enhance processes around restricted stock and units;
- internal and external audit teams understand the material risks and identify appropriate internal controls; and
- management and compensation designers better understand the critical strategic issues involved.