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The Employee Ownership Update

Loren Rodgers

February 15, 2017

(Loren Rodgers)

New Study: High-Performance Work Practices Can Have Negative Outcomes If Not Linked to Broad Incentive Pay

A new study in the UK shows that high-performance work practices can positively affect employee commitment, engagement, turnover intention, and job satisfaction, but only if multiple practices are used together, including broad-based incentive pay. Where only some practices are included, the results can be greater job stress and lower commitment.

The study, "Integrated and Isolated Impact of High Performance Work Practices on Employee Health and Well-Being: A Comparative Study," looks at a wide range of management practices, including team-based work, performance-related pay, selective hiring, grievance systems, job autonomy, staff training, flexible working, participative decision-making, information sharing, and supportive management. For performance-related pay to be included in the high-performance definition, it had to be paid to 40% or more of the staff. The study looked at both a large survey of National Health Service Employees and the 2004 Workplace Employment Relations Survey (WERS), a massive 2004 study of companies and employees covering 2,295 workplaces. Only the latter study looked at performance pay.

The top cluster of companies in the WERS study had high scores on broad incentives, team working, job autonomy, flexible work, and participative management. These companies saw very positive outcomes in terms of employee health and well-being. The results were mixed to negative in the next two clusters. While employee ownership was not part of this study, it confirms what other research has shown, namely that asking employees to get more involved in helping companies perform well, but not giving them a stake in the outcome, can appear manipulative to them.

China Continues Mixed-Ownership Reform

As of mid-February, 28 of China's 34 provincial regions had announced their plans for the reform of state-owned enterprises. Each provincial region's approach is different, but mixed-ownership reform, which often includes a measure of employee ownership, is prominent among several. Two provinces, Guangdong and Chongqing, intend to convert over 70% of their state-owned enterprises into mixed-ownership enterprises.

Research Factlet

Distributions from all ESOPs from 2002 to 2014 totaled nearly $880 billion ($879,791,547,549).

Arbor Assays Becomes Employee-Owned Through a Perpetual Trust

On January 1, 2017, Arbor Assays, a company that designs and manufactures tools for the life-science industry, became an employee-owned company through the use of a "perpetual trust." The owners sold their interests to the employee trust and provided seller financing. Arbor Assays now has 11 employee owners. While a relatively new technique in the United States, because the trust laws of many states limit the time period during which a non-charitable purpose trust can be established, this arrangement is more common in Great Britain, where "perpetual trusts" are widely recognized. (For more on perpetual trusts, see the forthcoming March-April NCEO newsletter or attend our April 2017 annual conference.)

NCEO Welcomes New Directors

Thank you to all of the members who voted in the 2017 board elections. The staff and board of the NCEO give our congratulations to the new and returning directors, who will serve terms from April 1, 2017, to March 31, 2020.

The seven new directors are:

Two incumbents, John Brown of the Business Enterprise Institute and Mary Stenvig of Realityworks, Inc., will be returning to the board.

Four directors will be leaving the NCEO's board: Steve Baker of the Great Game of Business, Adele Connors of Adworkshop, James Mauch of Tenmast Software, and Tom Roback of Blue Ridge ESOP Associates. James Mauch served as board secretary from 2014 to 2016. Tom Roback served as the board chair from 2013 to 2015. Thank you to all four for their generous and wise contributions to the NCEO and to employee ownership.

Employee Ownership in Canada

The ESOP Association of Canada has launched its new website at esopcanada.ca.

Former Employee Ownership 100 Company: Stock Now Essentially Worthless

Piggly Wiggly was once a prominent South Carolina-based grocery and listed on the NCEO's list of largest employee-owned companies, but starting in 2013 its fortunes declined, and it has sold off most of its assets. Participants in the company's ESOP received a letter saying that "the company has no positive value."

ESOP Tip: Should Your Board See Your Valuation Report?

Some outside trustees do not want board members to see the full valuation report. Their concern generally is that board members might be tempted to intervene in the appraisal. But ESOP boards are responsible for monitoring the trustee to make sure that the appraisal process is properly handled. Moreover, the appraisal report is an exceptionally valuable tool for understanding the business and what can make it more valuable.

Boards can mitigate trustee concerns by agreeing that while they will read the report and ask questions, they will not in any way attempt to influence the appraisal. The questions may stimulate the trustee to look at certain issues not being looked at (such as not reflecting the repurchase obligation), but the trustee needs to retain the ultimate decision power. The board should replace the trustee only if there is clear evidence the trustee is not handling the appraisal in compliance with ERISA.

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