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The Employee Ownership Update

Loren Rodgers

June 1, 2016

(Loren Rodgers)

Department of Labor's Timothy Hauser Comments on ESOPs

On April 14, 2016, Timothy Hauser of the US Department of Labor addressed the NCEO's annual conference. Hauser is the deputy assistant secretary for program operations at the Employee Benefits Security Administration (EBSA), and his responsibilities include overseeing EBSA's regulatory, enforcement, and reporting activities. This note is excerpted from a transcript of his remarks, which were not delivered from a prepared text. Members will receive a fuller version of his remarks in the July-August newsletter.

At events like this, I think it's important to celebrate what is unique about ESOPs: the transformational potential they have for empowering people and for improving the level of engagement and the level of satisfaction that people have at the workplace.

But it is just as important to recognize what is not unique about ESOPs. What isn't unique about them is that they are retirement plans. First and foremost from a Title I of ERISA standpoint, the purpose of an ESOP is to provide retirement benefits to people.

If there is one area of our enforcement program where we consistently see problems, it is in the appraisal context. We are more likely as an agency to find violations when we look at valuations in closely held companies than virtually any other category of financial transaction.

We can do better than these cases. We can do better if you can make sure that the plan is independent of the counterparty, if you make sure that the people looking at the appraisal look at it with a critical eye, if you make sure that the appraiser had the information he or she needed to do the job right.


In related news, the Department of Labor reached a settlement over alleged overvaluation of shares, resulting in an additional $3.47 million to the AIT Laboratories ESOP.

Bill Introduced to Encourage Stock Options

In a Washington Times op-ed, Rep. Dana Rohrbacher (R-CA) and Greg Autry at the University of Southern California argue that the best way to "ensure that corporate shareholders are individuals who can see beyond next quarter's profits" is to "find a way for employers to get more stock into the hands of employees and ensure they hold their shares." The advocate a bill (H.R. 4577) that would provide substantial tax incentives for companies that provide a simple grant of stock options to employees, although critics note that the bill does not contain any provisions to ensure a broad distribution of those awards, which could be limited to executives.

Crossing Borders: Employee Ownership and Craft Brewing

Employee ownership has long been a feature of craft brewing in the United States, with many breweries owned in full or part by their employees (see, for example, this article on Pittsburgh's Voodoo Brewing, or Harpoon Brewery's recent NCEO Innovations Award). That trend has now crossed the border into Canada. The father-and-son owners of Beau's Brewery in Ontario announced that they will gradually transition ownership of the brewer to employees by allowing employees a choice to purchase shares. Steve Beauchesne, the son, said employee ownership is "an important way to protect the legacy of our brewery and protect our independence."

Ex-CEO of Australia's Telecom Company Reflects on Employee Ownership

David Thodey, the former chief executive of Telsta, increased participation in the company's equity compensation plan from below 30% to over 90% over six years, making 27,000 people employee-owners. In an article in Australia's Financial Times (paywalled), Thodey said, "There's no better way to tune people in to creating shareholder value than to make them shareholders." Thodey spoke at a conference of Employee Ownership Australia and New Zealand, a membership organization, which notes that about 6% of Australia's businesses have employee stock plans.

Employee Ownership: A Trend in Foundation Grants?

An article in Inside Philanthropy explored the increased interest by foundation and other philanthropic organizations in employee ownership. The author, Philip Rojc, suggests that ESOPs and worker cooperatives can serve the goals of many philanthropists because "giving employees a stake in their company is a promising way to help ordinary people build more wealth and feel more economically empowered."

Stock Options in the Philippines

In an Op-Ed in the Manila Times, Boyet Murcia argues that although the legal structures are in place for employee ownership in the Philippines, very few companies adopt them. He advocates for the legislature and securities oversight agency to create incentives for companies to adopt broad-based equity compensation plans.

Author biography and other columns in this series

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