The Employee Ownership Update
April 14, 2010
ESOP Tax Costs Projected at $1.7 BillionThe White House fiscal year 2011 budget estimates that the special ESOP rules will cost $1.7 billion in 2010 and $1.8 billion in 2011. For context, this comes to 1.79% of the total tax costs of retirement plans and 3.2% of the tax costs of 401(k) plans, even though ESOPs have about 30% of the assets 401(k) plans do and roughly the same percentage of employer-contributed assets.
Broad-Based Employee Ownership Alive and Well in 2010Somehow, we passed the first 10 years of the 21st century without ever agreeing on what to call them (the "oughts" never caught on). Maybe a lot of people would just as soon forget them. Certainly, there were a lot of challenges for employee ownership. The decade started off with the implosion of the ESOP at United Airlines; the "stock-drop" disasters of Enron, WorldCom, and the like; and the dot-com bust and its attendant wipeout of equity values for a lot of technology sector workers. The middle of the decade brought new equity accounting and shareholder approval rules. Some companies, egged on by compensation consultants convinced that only "key" employees matter, used those rules as a reason to eliminate broad-based equity plans so all the equity could go to the top. The end of the decade, of course, brought the great recession and all the problems it caused for employee ownership (and everything else).
Despite all that, employee ownership survived. In our newly released 2010 version of the issue brief The State of Employee Ownership, we find that ESOPs grew over the decade, with the number of participants doubling and the asset value almost tripling. Broad-based equity plans shrank, but they covered only about 15% fewer employees than at the height of the dot-com boom and have shown some signs of growth in the last year. Research on the impact of employee ownership continues to show that these plans are good for companies and employees. With baby boomers set to retire, tax rates going up, and the M&A market less active, ESOPs in particular look more attractive than ever as a means for business transition. Meanwhile, the widespread disgust with exorbitant executive pay may cause some companies to rethink who really should get equity and how much.
The State of Employee Ownership is available for $15 to NCEO members and $25 to nonmembers.