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The Employee Ownership Update

Corey Rosen

December 15, 2010

(Corey Rosen)

Deficit Commission Recommends Major Retirement Plan Changes

The National Commission on Fiscal Responsibility and Reform (often referred to as the president's deficit commission) has suggested as an "illustrative" tax reform that Congress should "consolidate retirement accounts; cap tax-preferred contributions to the lower of $20,000 or 20% of income, [and] expand [the] saver's credit." That is all that it says on the issue, so the specific effect on ESOPs is not clear. What is clear is that the commission's proposals will face tough going in Congress given the likely substantial lobbying that would be done on this issue by plan sponsors and the financial industry. Less dramatic proposals in the past, such as one during the Bush administration, have not gotten off the ground.

NCEO Response to Department of Labor Proposal to Define Appraisers as Fiduciaries Available

The National Center for Employee Ownership has posted a response to the Department of Labor proposal to define ESOP appraisers as plan fiduciaries. The response can be found at this link. I would encourage anyone who has thoughts on this very important proposal, pro, con or in between, to send them. In evaluating the response to regulatory proposals, agencies often discuss not just the content of responses, but the number, seeing that as an indicator of how strong a concern there is about the issue. Responses can be submitted through or emailed to In an email, the subject line should read, "Definition of Fiduciary Proposed Rule." Responses must be submitted by January 20.

Twelve Bogus Reasons Not to Do an ESOP (and Seven Good Ones)

One of the most popular articles on our Web site is Twelve Bogus Reasons Not to Do an ESOP (and Seven Good Ones). You can give one bogus reason out to each of your skeptical colleagues and contacts on each of the 12 days of Christmas—or just send the whole article.

The Other Kind of Performance Award

There is a lot of buzz in the equity world these days about "performance awards," a term of art, not law, that usually means that either an equity award (typically restricted stock or a stock option) is vested, or sometimes granted, only if certain performance targets are met. But there is another kind of performance award that may work well for closely held companies that want to tie employees to some kind of mid- to long-term performance, but not stock value per se. This kind of award would be based on the company meeting a certain critical number or numbers (revenue, profits, new customers, or whatever else drives business success) over some period of years. If the company meets those targets, then some pool of cash is set aside to award to eligible employees based on a predetermined formula.

For instance, a company might grant Mary 100 performance units in 2011. The unit will be worth 10% of a pool of funds that will be set aside in 2014 based if the company's revenue grows by at least 20% over that time. If it does, then 5% of the growth in excess of the target will go into the performance award pool, and Mary would get 10% of it. Awards based on future targets could be granted every year or any other time period.

The thinking behind this concept is that employees may find it easier to focus on a number like this than the more abstract concept of share value. The payoff is more certain than many stock plans in closely held companies where plan rules often require a liquidity event to sell shares (albeit these plans could be written to provide for internal liquidity). Some owners may also just not be comfortable with sharing more equity or may have constraints on what they can offer based on investor requirements. Making these awards based on longer-term goals, meanwhile, encourages people to stick around and focus on whatever the company thinks drives the business.

Employee Ownership Fellowships Available

For the 2011-2012 academic year, Rutgers University School of Management and Labor Relations will host three sets of fellowships for doctoral students; recent Ph.D. graduates; and pre-tenure scholars in economics, history, management, business, labor and employment relations, law, philosophy, psychology, political science, public policy, and sociology. People interested in applying can learn more about the three fellowship programs by clicking these links: the Beyster Fellowships, the Kelso Fellowships, and the Smiley Fellowship. Joseph Blasi, who coordinates the program, expects to be able to award at least 15 fellowships. The deadline for applying is January 31, 2011.

Winning Workplaces Self-Nominations Now Available

Over the last few years, one-third of the winners of the Winning Workplaces awards have gone to NCEO members and employee ownership companies (all the winning employee ownership companies have been members, it turns out). The process for self-nomination is open again. Eligible companies must have 500 or fewer employees. In the past, winners have had strong benefit and compensation practices, high employee involvement, and often strong values. There is an application fee of $149 for companies up to 100 employees and $249 for companies up to 500 employees. There have been 15 winners in the past, but that could change.

There is a fairly simple initial application. For finalists, there is an employee survey and a small number of random calls to employees. Winners are profiled in a special edition of Inc. magazine (Inc. replaced the Wall Street Journal as a sponsor last year). To apply, go to this link.

New Staff Position Opening at NCEO

We are very pleased to announce that the NCEO will be growing by adding a new staff position sometime this spring. We are looking for someone who can do research, writing, and project management. Good presentation skills would be a plus. I may be biased, but the NCEO is a great place to work, as evidenced by our median staff tenure of 11 years. Details on the job, its requirements, and how to apply can be found at this link.

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