The Employee Ownership Update
August 1, 2014
New Report on Potential Impact of Equity Compensation in AustraliaOn July 14, Employee Ownership Australia and New Zealand issued a report titled Employee Share Schemes - Their Importance to the Economy (PDF), which estimates the impact of proposed reforms to equity compensation legislation in Australia.
The report estimates that the proposed reform would add $1.3 billion (US) to Australian domestic product over 10 years, based on the assumptions that (1) reform would result in 5% more companies adding stock plans and (2) the average increase in share price per company would be 10%. The first assumption is that reforms would reverse part of the decrease in such plans following 2009 legislative changes that discouraged stock plans. The second assumption is based on a report by FieldFisherWaterhouse on the UK Employee Ownership Index, composed of public companies in which 10% of shares are held by employees. Such companies outperform the UK's broader market by 10%.
The proposed reforms would generally reverse the 2009 change in the law, which was intended to curb excessive executive compensation. Among other things, the 2009 changes made most stock options taxable on vesting rather than exercise and limited the amount of allowable salary deferral for stock plans. The impact was that 30% of plans were suspended for two years, and many of those plans remain suspended. The average annual deferral per employee in "salary sacrifice" plans declined from $8,400 to $3,300 (US).
New Jersey Bill Would Encourage Employee OwnershipThe deputy speaker of the New Jersey Assembly, Upendra Chivukula (D), and Assemblywoman Holly Schepisis (R) have introduced Assembly Bill 2911, which would create a state income tax exclusion for qualified sales of stock to an ESOP or worker cooperative. The bill intends to avoid sales of New Jersey-based businesses to out-of-state buyers, noting that such outside sales often result in "the loss of jobs in this State and can be harmful to the fabric of local communities." Qualified businesses include S corporations, privately held companies with fewer than 500 employees, and eligible worker-owned cooperatives.
The bill includes an innovative provision to ensure that it is revenue-neutral to the New Jersey government: "The gross income tax exclusion will be contingent upon the qualified business receiving pre-transaction certification from the New Jersey Economic Development Authority that considering the gross income tax forgone from the exclusion of income, that the transaction will result in the retention of full-time jobs in the qualified business in this State and will yield a net positive benefit to the State."
The bill is gathering bipartisan support, and the New Jersey Assembly will host hearings in the next few months. Any New Jersey companies that have used or are considering using a rollover transaction and are willing to speak should contact Loren Rodgers (LRodgers@nceo.org; 510-208-1307). Joseph Blasi and Douglas Kruse, two professors from Rutgers University, a New Jersey state university, have assisted with research on the legislation.
Casino to Give Shares to EmployeesWynn Resorts, owner of Wynn Macau Casino, is giving each of its 7,500 employees 1,000 shares of company stock, according to a press release (PDF). Owner Steve Wynn (who also owns casinos in the U.S.) said that "I consider everyone at Wynn Macau my family, and it is my fundamental belief that our amazing success should also be shared as a family," Mr. Wynn said. "The only compelling way that my colleagues can fully participate in our business success is by making each and every one of them an owner of the company with me."
The stock was worth $3.96 per share at the time of grant. The company does not have an employee ownership plan for its US employees. The job market for casino workers in Macau, however, is very competitive.
Author biography and other columns in this series