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The Employee Ownership Update

Loren Rodgers

April 15, 2015

(Loren Rodgers)

DOL's New Proposed Conflict of Interest Regulation Excludes ESOP Appraisers

In 2010, the Department of Labor proposed regulations that would have made ESOP appraisers plan fiduciaries. On April 14, it issued a new proposed rule that specifically excludes ESOP appraisers from fiduciary status. The rule's list of "carve-outs" includes "the provision of an appraisal, fairness opinion or a statement of value to an ESOP regarding employer securities" (p. 31). In its discussion of this change, the Department cited the comments it had received.

The memo discussing the rule is clear that the Department still has concerns about the potential for flawed valuations during ESOP transactions and that it may propose a separate regulatory approach to ESOP valuations: "Although the Department remains concerned about valuation advice concerning an ESOP's purchase of employer stock and about a plan's reliance on that advice, the Department has concluded that the concerns regarding valuations of closely held employer stock in ESOP transactions raise unique issues that are more appropriately addressed in a separate regulatory initiative." (p 32). The Department also addressed this concern in the fiduciary process agreement it reached in the Sierra Aluminum case (see the NCEO publication The DOL Fiduciary Process Agreement for ESOP Transactions).

The Web site of the Employee Benefits Security Administration of the DOL has a number of resources on the new proposed regulation, including an FAQ, a fact sheet, a news release, and a number of analytical reports.

Op-Ed: Bring Back the Silicon Valley of the 1990s

In his April 10 article Reviving the Flagging Spirit of Silicon Valley in the Wall Street Journal, Michael Malone argues that Silicon Valley has lost its vitality because of the decline of what he calls "equitable equity." He describes equitable equity as "the attitude—and the practice—that all contributors to a company's success should have a material stake in that success." He specifically cites the practice of broad-based stock options, which give anyone—"scientist, entrepreneur, secretary or receptionist"—a chance to become rich.

The article, based on his keynote address at a meeting of Santa Clara University's Certified Equity Professional Institute and the National Association of Stock Plan Professionals, lays out a case for broad-based stock options and analyses the reasons that incentive compensation has become increasingly concentrated among executives, laying much of the blame on Sarbanes-Oxley, FASB's decision to require expensing of stock options, and then the rise of restricted stock units (RSUs).

Opinion: Is It Too Risky Not to Be in an ESOP?

One of the most common arguments against ESOPs as public policy is that they are too risky to be good retirement plans. Not only is a substantial portion of plan assets in a single security, but that security is tied to the employees' paychecks.

In an opinion piece, NCEO founder Corey Rosen explores the flip side of that question: what are the risks to the employee of not being in an ESOP? He looks at research results to explore several dimensions of risk by looking at the probabilities facing typical non-ESOP participants compared with typical ESOP participants.

Private Equity: Use ESOPs as Exit

The magazine Middle Market Growth, a forum for private equity professionals, includes an article on how private equity firms can best use ESOPs as an exit strategy. Author Mary Josephs notes that private equity groups currently hold around 13,000 companies, almost triple the level from a decade ago, and are looking for ways to exit their investments.

Employee Ownership at Oxford: July 25

Employee ownership will be a central theme of a free conference on business and poverty at Oxford University on July 25th. Topics to be covered include: employee ownership, mutuals, impact investing, crowdsourcing, responsible leadership and corporate social responsibility. The audience for this conference will be very diverse, including: practitioners, academics, students, impact investors and those who are generally interested. In the tradition of Oxford, participants will also sing together. Contact John Hoffmire at for information.

Author biography and other columns in this series

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