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The Employee Ownership Update

Corey Rosen

October 15, 2010

(Corey Rosen)

Obama Says Employee Ownership Should Be Encouraged

On September 28, NCEO board member Tom Roback had the opportunity to meet President Obama at one of his conversations with small groups of local people around the country. As it turned out, one of these was at Tom's sister's house in Richmond, Virginia. Tom asked the president about ESOPs. The transcript follows. A video can be found at this link.

Tom Roback: Thanks, Mr. President. I manage a small business. We serve ESOP companies—hundreds of ESOP companies. And I've just found it extraordinary in visiting many of these ESOP companies with the culture that they've developed, and the productivity and competitiveness, and it's a good model for keeping jobs here in the U.S.

President Obama: You want to just explain to everybody what ESOPs are? These are employee-owned businesses. I just want to make sure everybody understands.

Tom Roback: Exactly, exactly. And I wanted to just—the ESOP laws that have been in place for over 35 years have allowed employee owners to share a piece of the action of the business while not having to dig in their own pockets for that, so it's helped them get to retirement, which is tough these days long term.

My main question is just, with your good initiatives you're for focusing on small business in the new act, will you consider encouraging or expanding the law to help more small privately held companies look to the ESOP model? Thank you.

President Obama: I would absolutely be interested in taking a look at it. The idea behind these ESOPs is that if employees have a piece of the action, they're essentially shareholders in these companies, then you are aligning the interests of workers with the interests of the company as a whole.

Now, what that means is, is that when a company has a tough time, workers have to take a hit because they're owners, essentially. On the other hand, when things are going well, they're getting a share of the profits. And so theoretically, at least, it's something that can help grow companies, because the workers feel like they're working for themselves, and they're putting more of themselves into their job each and every day.

I think that it's something that can be encouraged. I have not seen specific proposals that are out there legislatively, but I'm sure you can share them with me.

Tom Roback: Yes, there actually has been a lot of strong research recently.

President Obama: Good. So I'll be interested in taking a look at that stuff.

ESOPs Held About 15% of Non-Governmental Retirement Asserts in 2007

A new report from the Treasury Inspector General for Tax Administration, Statistical Trends in Retirement Plans (click here for the report in PDF format) finds that ESOPs held about 15% of the total assets in non-government corporate retirement plans in 2007. ESOP participants constituted about the same percentage of participants in these plans. However, much of the money in 401(k) plans comes from employees themselves, while very little comes from employees in ESOPs. Moreover, most ESOP companies have a second or even third retirement plan. The data, in short, are another indicator that working for an ESOP company is, in general, very good for your retirement prospects.

New NCEO Issue Brief Examines Wellness Programs in Employee Ownership Companies

Wellness Programs and Employee Ownership, a new issue brief from the NCEO, looks at the practical and legal issues of wellness programs. The brief also has several detailed examples of programs from ESOP companies.

Research on wellness programs shows a 300% return on every dollar invested, plus the intangible benefits of having a healthier work force. The programs we looked at had several common features, including:

Some programs had on-site nurses or fitness equipment. Other companies provided healthy food choices or counseling (by phone, in person, or online). All reported that the programs were worthwhile investments with measurable results.

Companies implementing wellness programs need to get good advice on best practices as well as be aware of a variety of legal issues. While the rules are not difficult to meet, companies that are not aware of them may inadvertently violate such laws as the Americans with Disabilities Act (ADA) or the Health Insurance Portability and Accountability Act (HIPPA).

To read excerpts or to order, go to this link. The issue brief is $15 for NCEO members and $25 for non-members.

Zynga, Facebook to Charge Employees to Sell Shares

Facebook and Zynga have both announced that they will charge employees substantial fees to sell their shares on secondary markets that have developed to buy stock in private companies. SharePost CEO Greg Brogger reports that Facebook will charge $2,500 for each transaction, while Bloomberg News reports that Zynga will charge $6,000. The fees are meant to cover high administrative costs (primarily around disclosure requirements) for the companies for these kinds of sales as well as to discourage employees from exercising options and selling shares before these companies go public.

The ease of selling shares on these secondary markets makes it more attractive for employees to exercise their options. If enough do that, the companies could become de facto public companies if they would have 500 or more shareholders and more than $10 million in assets and thus be subject to substantial reporting and disclosure requirements.

Last Chance for Repurchase Obligation Study

The NCEO's questionnaire on the scope and characteristic of ESOP companies' repurchase obligation will be closed at the close of business on Thursday, October 21. The response rate is already record-breaking, but there's still time to fill out the survey and ensure you will be one of the first to see the summary of results. With 34 questions, mostly multiple choice, you won't need to invest much time and you will contribute to the most reliable set of data on distribution practices, use of funding options, diversification, redemption/recycling, and more. Click here to fill out the questionnaire online, or click here for a PDF questionnaire that you can use as a preview or fax/e-mail back to the NCEO.

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