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The Employee Ownership Update

Loren Rodgers

May 15, 2012

(Loren Rodgers)

Rutgers Appoints 22 New Fellows to Study Employee Ownership

The School of Management and Labor Relations at Rutgers University announced the names of the 22 new research fellows who will be studying broad-based employee stock ownership and profit sharing as part of an academic fellowship program funded by J. Robert Beyster, Mary Ann Beyster, the Employee Ownership Foundation, and other donors. The new appointments bring the total number of fellows above 70. The fellows, whom SMLR Dean Susan Schurman describes as "economists, finance experts, human resources scholars, industrial relations scholars, sociologists, philosophers, political scientists, historians, psychologists, anthropologists, and others," will address topics such as technology startups, risk management in retirement accounts, productivity, poverty, political contributions, and the role of individual choice in European ownership plans. The full list of scholars and their research areas is available on the Rutgers Web site. The NCEO's Corey Rosen is a faculty fellow and mentor to the fellows, and Ariana Levinson, the Corey Rosen Fellow, is studying potential legal reforms relevant to worker cooperatives.

The Employee Ownership 100: Coming Soon!

The NCEO will unveil its 2012 list of the 100 largest majority employee-owned companies in the United States in its upcoming July-August newsletter. Should your company be on that list? Your company qualifies if a majority of your company's stock is held by an ESOP, stock bonus, profit sharing, or similar plan, or if you have a stock purchase plan in which at least 50% of full-time employees participate and if you have enough employees. In the 2011 list, companies needed to have at least 1,200 employees (where the term "employee" counts all full- and part-time employees in the U.S. and overseas). If you think you might belong on that list, contact Jessica Thomas at the NCEO (JThomas@nceo.org; 510-208-1301) by Friday, May 18.

Employees Starting to Vote Against Executive Pay

Employee ownership plans are often one of the largest blocs of ownership in public companies, almost always through ESOPs or 401(k) plans. Traditionally, employees have either not voted their shares at all or supported management. Gretchen Morgensen, in a New York Times column on April 21, says this may be changing. Morgensen notes that at Wal-Mart, "a proposal from a small group of workers appeared on this year's proxy. It is the first employee-shareholder proposal to be put to a vote at that company, and it, too, centers on executive pay. The employees want the board to do an annual analysis, ensuring that Wal-Mart's pay plans are set up to discourage top management from making capital investments that hurt returns." Verizon has faced similar employee concerns. This few actions are a long way from an active employee shareholder movement, but as concerns about executive pay increase, Moregensen thinks employees may start to use their power more aggressively.

A Creative Approach to Stock Purchase Plans

Schneider Electric, a 130,000-employee multinational company, is offering employees an opportunity to borrow money to buy shares. The loans come from a bank, but the arrangements were made by the company. For each share an employee buys, nine more are purchased on the employee's behalf. At the end of the plan's holding period, the employee receives shares having a value equal to the original share purchased plus an amount equal to 5.5 times the increase in value (if any) of that share. Thus, for the price of one share, the employee receives the value of that share plus 55% of the gain (if any) on all ten shares. The bank receives the remainder of the gain.This gives the employee the chance to make a substantial gain with a relatively small risk, since the bank does not have recourse to the employees. The lender hedges its risk through buying puts and calls on Schneider stock.

Over 100 Multinationals Have Set Up Employee Ownership Plans in Zimbabwe

Over 100 foreign-owned companies in Zimbabwe have set up government-approved plans to share between 5% and 28% of their equity through employee stock ownership trusts that accumulate shares over an employee's tenure with the firm and pay out when they leave. Many, but not all, of the firms are in mining. The plans are being set up as part of the country's indigenization program. In addition, some firms have set up plans that go beyond the government guidelines, such as Schweppes, where the stock plan owns 51% of the subsidiary's shares. Other firms not covered by the requirements have also set up voluntary plans. The plans are almost always funded by employer contributions.

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