The Employee Ownership Update
February 17, 2009
More Than Half of Best Companies to Work for Have Broad-Based Employee OwnershipOf the 66 organizations on the Fortune magazine list of the 100 Best Companies to Work For in America that are not nonprofit organizations, law firms, or accounting firms, 38, or 57%, have broad-based employee ownership plans. Companies must have at least 1,000 employees to apply. Ratings are based on employee surveys and culture audits done by the Great Place to Work Institute. The percentage of employee ownership companies is almost the same in 2009 as it has been for the last several years.
Six of the companies—W.L. Gore & Associates, PCL Construction Enterprises, TDIndustries, Burns & McDonnell, CH2M Hill, and Publix Super Markets—are majority owned by their employees. Nine have only an employee stock purchase plan (ESPP), 11 have ESOPs, 17 have option and/or restricted stock programs covering most employees, and one has a direct stock purchase program and internal market (CH2M Hill). The number of companies using restricted stock has gone up sharply from prior years, while the number of companies with only ESPPs has declined.
The May/June issue of the NCEO newsletter will have a complete list of the employee ownership companies on the list.
BLS Data on Stock Option Participation Show Little ChangeThe percentage of workers receiving stock options in 2008 was unchanged from previous years, according to the Bureau of Labor Statistics. Its March 2008 data show that 8% of the 107 million private sector workers surveyed received options (more may be eligible but not have received them that year). This is essentially the same percentage it has been for the last few years given the margin of error in the survey. That suggests that broad-based equity plans, contrary to conventional wisdom, are not a relic of the past.
The BLS publishes an annual survey of companies' compensation and benefits practices. One of the measures is stock options, defined as shares that employees may buy at a defined price at a defined time. The question is somewhat ambiguous: some companies may interpret this to include employee stock purchase plans. The actual wording of the question is not available, only a summary of how BLS defines an option. Nonetheless, the number the BLS has produced annually has closely tracked data from the General Social Survey, which asks a more clearly defined question, as well as prior NCEO data estimates. Because the data come out annually, they also provide a reliable indicator of trends over time.
The percentage of employees getting options varies with income, industry, and other variables. For instance, 18% of those above the 90th percentile in terms of income get options, but only 4% in the bottom 25% do. Twenty-three percent of information industry workers get options, compared to 21% in finance, 8% in service companies, 11% in manufacturing, and 1% in construction.
The data can be found in the Bureau of Labor Statistics annual National Compensation Survey in the benefits section at this link, which also contains richly detailed data on health and retirement plans, bonuses, and other reward practices.
Radford Research Shows Equity Award Exchange PatternsNew data from Aon Consulting's Radford Surveys + Consulting shows that 48% of 103 companies that have conducted options exchanges since 2005 have used options for options exchanges, 36% options for stock (usually a form of restricted shares), 13% a options for cash, and 3% a combination. About 56% of the companies make CEOs eligible; somewhat more make other named executives eligible, but only 31% make board members eligible. Not surprisingly, companies that do not need shareholder approval for their options exchanges are more likely to include executives than those that do need an OK from shareholders.
Almost all the companies limit the options that can be exchanged to those with an exercise price above a multiple of the stock's fair market value at the time of the exchange. The median multiple is 1.4 times and the 75th percentile at 2 times. Half of the companies exchange one option for one new option; of those that do not, the median exchange ratio is 2 to 1. Where options are exchanged for stock, the median is 5 to 1. Just over half of the companies fully reset vesting, regardless of whether they're exchanging options for options or for stock; 28% of options for options companies and 14% of options for stock companies map existing vesting to the new awards; and the rest do partial mapping.
Radford also looked at how four plan design characteristics affected an exchange program's chances for favorable votes from mutual funds holding company shares:
- Exclusion of board and members and named officers
- Price floor above the 52-week high
- Value neutral exchange rates (the present value of the new awards does not exceed what the existing awards were worth)
- Reset vesting
Radford has a detailed portal on its Web site providing SEC filings for exchanges, articles on ideas for doing exchanges, and research on these practices.