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The Employee Ownership Update

Loren Rodgers

March 3, 2014

(Loren Rodgers)

Republican Tax Reform Proposal and Stock Plans

David Camp (R-Michigan), the chairman of the House Ways and Means Committee, introduced a thousand-page "discussion draft" of his comprehensive proposal on tax reform. The proposal would make some profound changes, such as introducing limits on mortgage interest deductions, but it is silent on ESOPs. It would, however, disallow tax deductions for compensation in excess of $1 million paid to the top five executives at companies, even when such compensation is performance-based. (The $1 million limit also exists under current law, but it exempts performance-based pay.) The plan would also repeal the alternative minimum tax (AMT) and would require mark-to-market accounting for stock options, under which the gain on stock options would be calculated on current value, whether or not they are exercised in a given tax year.

DOL Officials Say Lawsuits Over ESOPs Are High on Their Agenda

Speaking to the American Bar Association Section of Labor and Employment Benefits Committee in New Orleans in February, Department of Labor Deputy Assistant Secretary for the Employee Benefits Security Administration (EBSA) Tim Hauser said ESOP valuations have been "an area of chronic problems" that EBSA has aggressively pursued in the last year. Hauser said that the DOL was pursuing a "big number" of cases for 2014.

Hauser said the problem was that appraisers were too willing to accept management projections for future earnings without really assessing how reasonable these projections are. EBSA assistant secretary Phyllis Borzi added that "the valuation issues continue to be very problematic." She acknowledged, however, that they see the bad cases, but "there are plenty of well-run ESOPs." She said that "the problems we see are when ESOPs are used solely and completely as a corporate financing vehicle and not as a vehicle for employee ownership."

Dean Schroeder on Employee Ownership and Innovation

One of the most compelling books on management and innovation is Ideas Are Free by Dean Schroeder and Alan Robinson. Schroeder and Robinson update their ideas in a forthcoming book, The Idea-Driven Organization: Unlocking the Power in Bottom-Up Ideas, and Schroeder will be the keynote speaker at the NCEO's annual conference (April 8 to 10 in Atlanta).

In an article for the NCEO (see the March-April issue of the Employee Ownership Report; during March and April of this year, you also can read the article on our newsletter excerpts page), Schroeder argues "Eighty percent of a company's improvement potential is locked up in the creativity and ideas of its front-line people. Companies that are good at unlocking this potential typically implement as many as 50 ideas per employee per year and, as a result, are able to achieve exceptional performance year after year as they improve at rapid rates and are much more agile than competitors."

Join us in Atlanta to hear what Schroeder has learned about the counterintuitive principles that translate corporate-wide goals into disaggregated and operational front-line metrics. You can also learn more in their new book, which will be released on March 31, 2014, by Berrett-Koehler Publishing, an ESOP-owned company.

Employee Ownership Conference in the UK

The White Rose Employee Ownership Centre at the University of York (United Kingdom) will host a conference on April 2 and 3 featuring research and management best practices on topics such as employee behavior, employees governance, well-being, and organizational climate.

Author biography and other columns in this series

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