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The Employee Ownership Update

Corey Rosen

September 30, 2008

(Corey Rosen)

McCain Endorses ESOPs

In a letter to the ESOP Association, Senator John McCain has said that "for millions of Americans owning a stake in the company they work for is extremely rewarding. Many Americans are able to 'work for themselves' through their participation in Employee Stock Ownership Plans (ESOPs). These broadened ownership plans allow American workers the ability to participate directly in the growth and success of the companies for which they work."

"About 90 percent of ESOPs are in small businesses with less than 500 employees. We all know that small and entrepreneurial businesses are the lifeblood of the American economy. These businesses that are often unable to match the substantial health care and other benefits that are normally provided by major corporations, due to the cost, are able to provide employees increased retirement benefits and stable employment because of ESOPs. Research has shown that ESOP-owned companies are usually more productive and profitable than other companies, as well as having better survival rates."

"For these reasons, I am proud to support ESOP-owned companies and the role they play in the American economy. As President, I would endorse efforts to learn from the successes of ESOP companies and see how their positive impact can be expanded."

Earlier this year, Senator Obama also expressed support for the idea of employee ownership, but cautioned that there were circumstances where it could be too risky.

Companies Continue to Diversify Equity Plans

A new survey of technology and life science companies from Culpepper and Associates finds that both private and public companies are relying less on options than they did in prior years. While 59% of the companies still use options, 51% use restricted stock or restricted stock units, 11% have stock appreciation rights, and 8% have phantom stock. ESOPs are surprisingly well-represented in this sector, with 11% of the companies having these plans. Eighty-three percent of the options companies have other plans. A comprehensive version of the data is available for participants in the survey or subscribers to Culpepper's survey data.

Employees Sue Zell over Tribune ESOP

In a highly publicized move, several well-known Los Angeles Times reporters have filed a class-action lawsuit against Sam Zell over how he structured the ESOP at the Tribune Company (parent of the Times) and how he is now running it. The suit alleges, among other things, that the transaction caused the ESOP to overpay for the shares, that incentives were used to bribe management into pushing for the sale to an ESOP, that Zell got too much of the equity, and that Zell's management of the company, particularly what the employees view as outrageous public statements and behavior, have all been detrimental to their interests as owners.

The ESOP transaction at the Tribune was one of the largest ever, giving the ESOP 52% of the fully diluted equity and Zell 40%. It was highly leveraged, and that debt has now become more difficult to repay as revenues at the Tribune and in the newspaper business in general have taken a severe hit. Given the fact that the suit has been filed by well-known reporters at a high-profile company, it is certain to generate ongoing widespread media coverage.

NCEO Board Self-Nominations Sought

The NCEO is soliciting nominations for the board of directors. Seven of the 21 elected members will be chosen. Board members serve three-year terms and can be reelected once. Board members serve at their own expense. The board meets before the annual meeting and periodically by conference call. In addition, each board member serves on a committee (equity compensation, ESOP technical, or membership). Board members should be prepared to make a significant contribution to the work of the committees, such as writing articles, soliciting new members, promoting and developing new products and services, and providing active feedback to the staff.

Nominees should submit a 100-word statement to Corey Rosen at the NCEO at crosen@nceo.org.

Author biography and other columns in this series

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