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The Employee Ownership Update

Loren Rodgers

March 15, 2017

(Loren Rodgers)

The Encouraging Employee Ownership Act Advances in Congress

On March 9, the Senate Banking Committee unanimously approved the Encouraging Employee Ownership Act (S. 488), a bill that would ease current Securities and Exchange Commission rules, making it easier for private companies to provide stock-based compensation to employees. The bill would increase to $20 million the current $5 million cap on the amount of stock closely held companies can award employees before triggering certain SEC reporting requirements. The amount would be indexed for inflation annually.

The bill passed the House last year, but was not acted on in the Senate. It has been reintroduced this year as H.R. 1343. Senators Warner (D-VA) and Toomey (R-PA) sponsored the Senate version, and Representative Randy Hultgren (R-IL) introduced the House bill.

More about this bill is on the NCEO's Rapid Response to Current Events page.

New Report: European Trends in Employee Stock Ownership

On March 7, the European Federation of Employee Share Ownership (EFES) reported on that among 2,335 European companies listed on stock exchanges, the average stake held by employee share plans is 3.2% That is up from 2.5% in 2006. But while the ownership average has grown, the percentage of employees in plans has dropped from a high of 25% in 2010 to 22% in 2016, even though the percentage of companies with broad-based plans has increased to 53% in 2016 from 39% in 2006.

EFES noted that "the employees' ownership stake was "significant" in 1.220 or 52% of the companies (employees holding 1% or more), "strategic" in 464 or 20% (employees holding 6% or more), and "controlling" in 266 or 11% (employees holding 20% or more). Fifty-two percent of the companies have some form of broad-based share plan.

Most of the plans provide for voluntary purchase by employees at a discounted rate, or in some cases with a share match. Norway, the UK, Poland, Spain, and Austria have the most pro-employee ownership legislation, but France has cut back support, while Germany's remains tepid. Much of the growth in employee ownership is due to rapid growth in the UK, where 28% of employees in listed companies own shares, while ownership on the Continent has dropped to 20% from a high of 24% in 2011. The UK has been aggressive in promoting employee ownership, especially since 2012.

The full report provides in depth country-by-country data and breaks down ownership between kinds of plans and amounts held by executives.

Pennsylvania Center for Employee Ownership: Annual Meeting

Thirty-six people from 28 companies attended the annual meeting of the Pennsylvania Center for Employee Ownership (PaCEO) on February 27 and 28 in Harrisburg, Pennsylvania. The meeting covered some of the PaCEO's accomplishments over the past year, such as:

Executive Director Kevin McPhillips suggested that the PaCEO is chasing a tipping point. That tipping point will come when we effectively introduce the terms "employee ownership" and "ESOP" into the common language, much as we have with "401(k)." View the latest news about the PaCEO on its website, or contact Kevin directly at

Colorado Legislature Considers Pro-Employee Ownership Bill

Tomorrow, March 16, the Business Affairs and Labor Committee of the Colorado House of Representatives will consider HB 17-1214, designed to encourage employee ownership of existing small businesses. The bill would require state-sponsored outreach to support employee ownership and would fund a revolving loan fund that would encourage existing businesses to transition to employee ownership. The bill is sponsored by Representative James Coleman (D) and Senator Jack Tate (R).

Texas Bill Would Make ESOPs Eligible to Be Designated as Historically Underutilized Businesses

H.R. 4171, "An Act Relating to the State Designation of Employee Owned Corporations," has been introduced by Texas State Representative Ryan Guillen. It would allow ESOP companies in Texas to be recognized as Historically Underutilized Businesses. The designation would add ESOP companies to other business categories qualifying for contracting preferences with the state. For more information, go to

ESOP Red Flags: Signs You Should Reconsider Your ESOP Transaction

Data from our transaction survey shows that most ESOP transactions work out well for the seller, the company, and employees, but sometimes the phone rings at the NCEO with a story that went the other way. An ESOP transaction may have been designed by someone whose knowledge was a couple years out of date, an advisor who promised a bit more than was wise, or someone who followed a seemingly harmless shortcut that wasn't so harmless. What are the signs that an ESOP transaction may cause problems in future years?

The NCEO compiled a list of bad outcomes and how to recognize them. It draws on litigation, stories from companies and service providers, and our staff's experience working with members. Take a look at Red Flags in ESOP Transactions for tips about recognizing inexperienced or biased advisors, transaction structures that deserve a second look, warning signs about valuation, and more.

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