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The Employee Ownership Update

Loren Rodgers

April 1, 2013

(Loren Rodgers)

Employee Ownership in the Largest 900 Companies

The NCEO identified 40 of the 900 largest public companies in the United States that provide broad-based options to employees (meaning most or all full-time employees are eligible for awards, although they may not actually get them), and 17 that provide broad-based restricted stock grants or similar awards. In addition, 425 of the 900 companies have employee stock purchase plans (ESPPs). Twenty-eight of the companies have an employee stock ownership plan (ESOP), stock bonus plan, or profit sharing plan invested primarily in company stock. All numbers understate the actual numbers of plans, since in many case companies are not required to report systematically whether they have plans.

In almost all the cases, almost all full-time employees are eligible for awards, although they may not all receive them if the awards are based on performance reviews. In a few cases, employees had to reach a supervisory level, such as assistant manager, to be eligible.

The NCEO gathered data on all forms of broad-based employee ownership in the S&P 500 and the S&P MidCap 400 under a contract with the Heron Foundation, which uses the data as part of its own efforts to encourage broader ownership of wealth. The list is compiled based on information in the employee benefits area of the companies' Web sites as well as a Web search to see whether the company has an ESPP. Because some companies do not specify their benefits, this list is not comprehensive.

The March 2013 issue (members area username and password required) of our Equity Compensation Report, a PDF-only newsletter for NCEO members, has a table on the last page listing the companies that offer broad-based individual equity grants.

District Court Rejects DOL Position, Upholds Indemnification Agreement

In Harris v GreatBanc, Judge Manuel Real of the U.S. District Court for the Central District of California dismissed the argument of the U.S. Department of Labor (DOL) that an indemnification provision violates ERISA. Sierra Aluminum hired GreatBanc in 2005 to serve as trustee of its ESOP, and the agreement included an indemnification provision. The DOL argued that because the ESOP owns 100% of Sierra Aluminum's stock, payments of defense cost or indemnification would decrease the value of company stock, and noted that the court invalidated an indemnification agreement in Johnson v Courturier. The court ruled that Couturier is "inapplicable" to the indemnification agreement in this case, noting, among other arguments, that the Sierra Aluminum agreement "expressly prohibits indemnification if a court enters a final judgment from which no appeal can be taken finding GreatBanc liable for breach of its fiduciary duties under ERISA."

UK: Tax Relief Proposed; "Rights for Shares" Defeated

The 2013 UK budget includes 50 million ($76 million) for "a capital gains tax relief on the sale of a controlling interest in a business into an employee ownership structure" and notes that the intent will be to include this relief in the 2014 finance bill. Iain Hasdell of the UK's Employee Ownership Association calls the measure "a good start," but expressed disappointment that it would not take effect immediately.

Last week, Deputy Prime Minister Nick Clegg proposed an additional incentive, consisting of "a relief on tax on bonuses paid through benefit trusts, where a significant chunk of the business is owned by employees." He noted, "The Cass Business School concluded in 2010 that employee-owned businesses are between nine and 19% more productive than traditionally structured companies."

The Chancellor of the UK, George Osborne, proposed a plan in October to encourage employers to offer shares to employees in exchange for their voluntary relinquishment of certain employment rights. Dubbed the "Rights for Shares" plan, the proposal had been widely criticized. On March 21 the House of Lords rejected it, with Lord Forsyth calling it "positively dreadful," and Lord Adonis arguing that "when you have a totally mad idea like the one before us, the best thing is not to test it out but to kill it at birth."

DOL Issues Update to Delinquent Filer Voluntary Compliance Program

On January 13, 2013, the U.S. Department of Labor announced various changes to the Form 5500 delinquent filer voluntary compliance program. The changes include a requirement to file electronically, specified which forms need to be filed, and created an online calculator for penalties. For details, go to this page on the DOL's Web site.

UPenn Program for ESOP Company Executives

The Center for Organizational Dynamics at the University of Pennsylvania will again host "the first and only program anywhere formally addressing the relationship between the distinctive nature of ESOP companies and the effectiveness of leaders." The program consists of two week-long sessions, one in June and one in November. Topics include the challenges and opportunities unique to leading an ESOP company, practical ideas to promote employee engagement, implications of recent research, and strategies for building a high-performance ownership culture. Attendees will also leave the program with a network of peers at other ESOP companies. More about the program is available online or by contacting the program's academic director Ginny Vanderslice (215-292-4865,

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