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The Employee Ownership Update

Corey Rosen

March 1, 2011

(Corey Rosen)

ESPP Participation Rising

According to a February 18 story on, employee participation in employee stock purchase plans (ESPPs) is rising. The story notes that "BNY Mellon Shareholder Services, which administers such plans, reviewed its numbers for and found that employees who made cash contributions to their plans (as opposed to a fixed flat percentage) contributed 12% more in 2010 than 2008. Fidelity Investments saw a 20% increase in employee stock purchases last year, due in part to participation rates that grew by 15%."

NCEO surveys on ESPP participation shows that participation increases when the market has been going up, although arguably the best time to put money in one of these plans is in a down market. Details on the most recent ESPP survey can be found at this link.

Beyster Fellows Symposium Participants Report on New Research on Employee Ownership

The Fellowship program of the School of Labor and Management Relations at Rutgers University held its mid-year fellows workshop in honor of Louis O. Kelso. The workshop was funded by John Menke of Menke Associates. The fellowship program is funded by generous grants from The Foundation for Enterprise Development (started by Robert Beyster), the Employee Ownership Foundation, and numerous individual donors.

This year, more than 28 papers were presented, including a number of case studies, theoretical works, works in progress, and completed empirical analyses. One of the more important findings came from Fidan Kurtulus of the University of Massachusetts and Douglas Kruse of Rutgers. They found that over the last decade, public companies with ESOPs had significantly less employment volatility, both up and down, than non-ESOP companies. Paige Ouimet of the University of North Carolina reported on her study showing that participants in public company ESOPs get higher compensation than those in non-ESOP companies. In a new study, she has preliminary results indicating that companies with broad-based options have lower turnover.

All of the papers can be accessed at this link.

IRS Clarifies When Valuations Are Needed for Thinly Traded ESOP Companies

In Notice 2011-19, "Definition of 'Readily Tradable' on an Established Security Market," the IRS has put into regulations the long-held assumption that companies are considered privately held unless their stock is readily tradable on an established security market. Pink sheet stock companies, therefore, would need an appraisal for their ESOP.

Court Offers Affirms One More Defense in Stock-Drop Cases

A district court has added another possible line of defense for fiduciaries in stock-drop cases by agreeing with the defendants that, unless fiduciary decisions actually caused investment losses in employer stock, fiduciaries could not be held accountable for them. In Dann v. Lincoln National Corp., No. 08-5740 (E.D. Pa., Feb. 10), a district court ruled that even though Lincoln National's stock dropped 90% during the class period, the loss was not caused by any act, omission, or fault of the fiduciaries.

If sustained at higher court levels, this defense could make it almost impossible for plaintiffs to prevail in these cases.

Author biography and other columns in this series

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