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The Employee Ownership Update

Loren Rodgers

July 2, 2012

(Loren Rodgers)

Supreme Court Decision Upholds Surtax on Investment Income

The Supreme Court's decision that the Affordable Care Act is largely constitutional also affirmed a 3.8% capital gains surtax for certain taxpayers. Assuming Congress extends the current rate of 15%, set to expire on December 31, the capital gains tax rate for some taxpayers will rise to 18.8%. The surtax will apply to couples with over $250,000 in adjusted gross income (AGI) and single filers with AGI over $200,000. If Congress does not extend the Bush-era tax cuts, the top capital gains rate for those taxpayers will rise to 23.8%. The Wall Street Journal called the surtax a "game changer for many taxpayers," observing that some people will have incentives to push future income into the 2012 tax year. The surtax would increase the value of the Section 1042 rollover, which allows sellers meeting certain conditions to defer capital gains tax on the sale of C corporation stock to ESOPs. It would also affect those receiving some forms of equity compensation. Medicare tax for these same taxpayers will also increase from 1.45% to 2.35%.

Court Allows Case Alleging Fiduciary Violation by Following Plan Directions to Go Forward

A U.S. district court judge in the Middle District of Florida rejected a defendant's motion to dismiss a claim against trustees of the KSOP (combined 401(k)/ESOP) at Community National Bank Corporation (CNBC). The CNBC stock eventually became worthless, and plaintiffs allege that the defendants failed in the duty of prudence and loyalty by continuing to offer CNBC stock as an investment alternative. Plaintiffs allege that the defendants knew of the threat to the value of the shares because, in their capacity as directors and officers, they signed an agreement with the Office of the Comptroller of the Currency (OCC) under which the OCC found unsafe and unsound banking practices. In a ruling on May 10, the judge, James Moody, found that "these allegations are sufficient to state a claim because, taken as true, which the Court must assume at this stage, they demonstrate that Defendants 'abused their discretion by following the [P]lan's directions.'"

Employee Ownership Outside the U.S.

Employees of Société Général, one of Europe's largest financial services companies, bought newly issued shares representing 0.54% of the company's ownership. Société Général has 160,000 employees, and 28,900 current and former employees in 33 countries paid €81 million ($103 million) to buy shares at a 20% discount as part of the company's employee share ownership plan.

In the United Kingdom, a report on privatization of public sector services via worker cooperatives was released on June 25. The commissioned by the Cabinet Office concludes that the number of these cooperatives, or mutuals, has increased six times since 2010 and that they are dispersed across the country. The Cabinet Office minister, Francis Maude, says, "All the evidence shows that employees who have a stake in their business, or take ownership of it completely, have more power and motivation to improve the services they run." The report notes that 50,000 public sector workers are now in mutuals, well short of the government's goal of one million by 2015.

Also in the UK, the chief executive of the London Stock Exchange called for increasing use of employee stock ownership. In an op-ed in the UK's newspaper the Telegraph on June 24, Xavier Rolet called for four steps to shift corporate finance from debt to equity, one of which was "to reinvigorate employee share-ownership schemes, empowering a much broader spectrum of people to invest in the company they work for."

Ho Chi Minh City Infrastructure Investment Joint Stock Company, whose primary assets include water treatment plants and toll roads serving Ho Chi Minh City and surrounding areas, announced that it had issued 60,000 shares to its employee stock ownership plan (ESOP). The same day the company's president, Le Quoc Binh, announced that he would buy 700,000 shares.

Become an Employee Ownership Ambassador

The NCEO recently launched the Employee Ownership Ambassador program as a resource for companies interested in learning more about employee ownership. Ambassadors are members of the employee ownership community who want to share their knowledge and experience with companies interested in ESOPs or other equity plans. This forum will allow interested companies to learn more about ownership in a diverse range of companies from myriad geographic regions and industries, with a variety of equity or ownership plans, plan durations, and sizes. If you would like more information or your company is interested in becoming an Employee Ownership Ambassador, please contact the NCEO at

Aspirations Conference: July 25

The NCEO is an event sponsor for Aspirations 2012, Stock & Option Solutions' second annual conference on equity compensation, which will be held on July 25 in Santa Clara, CA. The conference is designed for executives and stock plan staff from private companies planning a liquidity event. Topics include forms of equity compensation, education, international issues, and more, and the early registration deadline is today. Learn more at the conference registration site.

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