The Employee Ownership Update
November 1, 2011
New NCEO Survey of Equity Compensation in Private CompaniesThe NCEO has completed a new survey of equity compensation practices in private companies. We received 201 completed surveys from companies and 32 from service providers. Respondents represented a broad range of entrepreneurial companies, and unlike other surveys of equity in private companies, this one does not just focus on high-tech companies or pre-IPO companies (in fact, only 10% of the respondents think they may do an IPO). Some highlights include:
Visit our page for the 2011 Private Company Equity Compensation Survey Results for more information or to purchase them ($150 to members, $250 to non-members).
- Forty-seven percent of the respondents use an outside appraiser. The next most common response was to have the board set the figure with advice from an outside professional (20%).
- Almost all the companies give equity to at least some of their C-level executives; 77% of companies give equity to all of these employees.
- Fifty-six percent of the companies provide equity to at least some hourly/non-supervisory employees, and 69% give equity to at least some supervisory/technical employees. C-level employees receive an average of 56% of the awards, other management 19%, supervisory and technical employees 12%, and hourly/non-supervisory employees 4%.
- Two-thirds of the companies use stock options; restricted stock was far less common, at just 29%. Phantom stock, stock appreciation rights, and restricted stock units are all used by under 10% of the companies. The mean percentage of equity held by non-founders through awards was 15%.
Mitt Romney and ESOPsIf elected, Mitt Romney would be the first U.S. president to have direct experience with ESOPs. Bain and Company, which Romney once headed, set up an ESOP in 1985, paying what in retrospect appeared to be an inflated price for 30% of the company. Romney joined Bain in 1973 and rose to be vice-president. In 1983, he left Bain & Company to head its new spin off investment firm, Bain Capital, where Romney focused on leveraged buyouts. In 1990, he rejoined Bain & Company to replace its founder, Bill Bain, after the business consulting firm had suffered a string of setbacks, dissension, and a scandal over its work with Guinness PLC. Bill Bain had tried to sell the company, but had no takers. Instead, it was recapitalized, with the ESOP now owning 40% of the stock. Romney successfully restructured the firm, which went on to become consistently successful. He left in 1992. The ESOP was terminated in 2000 for reasons we could not discover.
New Research on ESOP TrendsIn its biannual research report The Total View, describing the retirement plan practices of its clients, Principal Financial Group reports that ESOP companies have higher-than-average contribution rates to defined contribution plans, with an average rate of 11.9% of compensation. One fascinating result of their analysis is that ESOP participants are more likely to contribute to a 401(k) plan than are employees in non-ESOP companies. Principal writes, "Participation rates in the 401(k) plans for companies that sponsor an ESOP is 63.1% while the average participation in a 401(k) plan is 60.2%." The report, which represents data from 37,000 plans and 3.7 million participants, is available at this link.
EASi Meeting on Preparing Equity Awards for an IPOThe NCEO is pleased to be a supporter of a November 10 meeting sponsored by Equity Administration Solutions, Inc., on equity awards in pre-IPO companies. Experts will discuss the regulatory, tax, accounting, and administrative issues you need to consider as your company transitions from private to public. Details are at this link.
IRS Announces Pension Plan Limitations for 2012On October 20, the IRS released its revised dollar limitations affecting a variety of pension and retirement plans. Some limits are revised upward to reflect a cost-of-living adjustment. The list of 2012 limitations is on the IRS Web site.
Global Equity Organization: Executive Director SearchThe Global Equity Organization, or GEO, is an international nonprofit membership organization that supports companies in creating, managing, and administrating quality stock plan programs. GEO's executive director, Michael Bendorf, will be stepping down, and GEO's board is conducting a job search for his replacement. Interested candidates can learn more and find application instructions in GEO's online job description and applications must be submitted by November 4. The NCEO applauds GEO and the work it has done over the years.
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