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The Employee Ownership Update

Corey Rosen

April 30, 2009

(Corey Rosen)

Employee "Ownership" at Chrysler and GM?

As part of their efforts to recover, General Motors and Chrysler both are pursuing agreements with the UAW to provide the union with company stock to help fund retiree health-care trusts. Chrysler had agreed with the UAW to give shares to the union health fund trust valued at 55% of the company and a promissory note for $4.59 billion to be paid with interest in installments. But if the shares can be sold for more than the price at which they were contributed, the U.S. Treasury gets the difference. It is not clear whether the bankruptcy filing will undo this arrangement. GM is negotiating for a similar deal to fund half of its $20.4 billion obligation, leaving the UAW with 39% of the company.

The press is presenting this as "employee ownership," but that seems a stretch. Employees would benefit only in the sense that if the companies can keep their stock values from falling further, then the trust will be much more likely to pay for retiree health care. That is a far cry from a typical employee ownership arrangement where employees personally benefit from increases in share value.

For the most part, the press is explaining this not as employee ownership but as union ownership. An exception is BusinessWeek (at this link), although the story does a good job of explaining what it takes to make employee ownership work.

What Stories Do People Tell About Your Company?

At the NCEO's recent annual conference, Southwest Airlines President Emeritus Colleen Barrett said that people are always lining up to her to tell her their favorite Southwest stories, usually about how employees went out of their way to help customers, make people laugh, or otherwise go well beyond what people expect from airlines. One of the attendees got up and told his own story about how a colleague who was lip-synching to the safety message at the start of the flight was asked to do it out loud on the P.A. system (he did it flawlessly) and then later given an apron and told to help pass out nuts. Barrett said that most airline employees would not be thrilled with the idea of people coming to tell their stories as they usually would be of some dreadful experience.

That suggests a whole new metric for how your company is doing. What stories do your customers and suppliers tell about you and your competitors? If there are good stories, do they become part of the company folklore everyone knows?

ESPPs in a Down Market Pose Special Challenges

When stock prices fall significantly, employee stock purchase plans (ESPPs) can run into difficult, if avoidable, problems. Most plans allow employees to buy stock at a discount from the lower of the share price at the beginning or end of the offering period. If the share price drops a lot over that period, employees may be able to buy a very large number of shares with the money they have been putting aside. Unfortunately, the limit on the amount any one participant can buy in any one year under a plan that is tax-qualified under Internal Revenue Code Section 423 is based on the share price at the beginning of the offering period. If shares are trading for $50 at that time, the limit would be 500 shares (500 x $50 = $25,000, the ESPP annual limit). When share prices fall dramatically during an offering period, companies can risk depleting their shareholder-approved pool of shares much earlier than intended. If this happens, money has to be refunded to employees and they have earned no interest over that period. In some case, plan rules may say that if shares are oversubscribed, no shares will be made available.

Writing in the NCEO's new issue brief Equity Compensation in a Down Market, NCEO board member Dan Walter of Performensation Consulting says that careful plan design and employee communication can avoid these problems. The issue brief is available for $15 to NCEO members and $25 to non-members, plus shipping.

Carey Center Essay Contest

The Carey Center for Democratic Capitalism ( is sponsoring an essay contest for students (middle school through college, or in adult education or online education programs) on "democratic capitalism." The Center was founded by Raymond Carey, former CEO and chairman of ADT, a major provider of security systems now owned by Tyco. While at ADT, Carey created an innovative profit sharing and employee stock purchase plan and promoted systems for greater employee involvement in work-level decisions. Now he is seeking to promote the concepts of what he calls democratic capitalism, a system with a wider distribution of ownership and participation at all levels as well as changes in government and corporate practices to discourage what he calls "ultra-capitalism," characterized by extreme wealth concentration and excessive focus on financial manipulation.

Essays should be 300 to 800 words long. Winners will receive a $500 prize; two will win a $1,000 prize. Details are on the Carey Center's Web site.

Author biography and other columns in this series

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