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The Employee Ownership Update

Loren Rodgers

January 16, 2018

(Loren Rodgers)

Sen. Gillibrand Visits Employee-Owned Company

On January 9, Sen. Kirsten Gillibrand (D-NY) visited ESOP-owned Niagara Gear. The Senator has sponsored legislation to promote employee ownership.

UK Think Tank Advocates Changes in Employee Ownership Law

In a new paper, Capital Gains: Broadening Company Ownership in the UK Economy, Matthew Lawrence and Nigel Mason of the IPPR Commission on Economic Justice propose broad policy proposals to share the benefits of capital ownership more widely. The IPPR is a progressive research policy organization representing a number of leading thinkers in the UK. The paper was vigorously endorsed in an editorial a recent edition of the Guardian. The report noted that the top 10% of the population owns 70% of the financial wealth, only 7% of UK households have one or more people owning employee shares or employee options, and that executives and board members get 31 times the ownership shares in companies with any kind of ownership plan than they would get if shares were allocated based on relative pay.

The report urges the establishment of a common wealth fund and the encouragement of more cooperatives, but also urges reform of the existing employee ownership trust (EOT) model in the UK. EOTs have many rules similar to ESOPs, including allowing sellers to the trusts in private companies to defer tax on the gain and a requirement that benefits be equitably allocated. Only EOTs owning 51% or more of the company qualify. About 150 EOTs covering 12,000 employees have been set up in the UK since the law was passed in 2014. Unlike the U.S., employees do not receive shares. Instead they get cash bonuses that are tax-free up to £3,600 per annum, provided they do not substitute for other wages or benefits. The model is the same as used in the iconic John Lewis Partnership, one of the UK's largest retailers.

The report urges that EOTs be changed to make share ownership possible, to make it possible for companies not to pay a tax of 36.5% on money used to repay loans to fund the trust (because UK tax law treats such payments as taxable dividends), and to allow additional incentives for equity investors and sellers.

Large Australian Companies Request Stronger Employee Ownership Policies

Australian's Group of 100, an organization of the chief financial officers of country's 100 largest companies, has called on the government to create more incentives for companies to share profits and provide equity compensation to employees. Andrew Porter, the group's president and the CFO of Australian Foundation Investment Company, cited employee ownership as a solution to the problems caused by stagnant wage growth. In an interview reported in the Australian Financial Review, he said, "Where an employee can directly see how improvements in the bottom line of a business can benefit them, they become more motivated—generally speaking—and the business improves."

Coffee Company Settles Lawsuit; Plans Transition to Employee Ownership

The San Francisco Chronicle reported on January 13 that the coffee roaster and café company Four Barrel had settled a lawsuit alleging sexual harassment. The CEO has resigned and relinquished his 50% share of the company, which plans to eventually become 100% employee-owned.

Exit Options: Article in The Business Journals

A January 12 article in The Business Journals discussed three ways the owner of a private company could cash out: an IPO, an outside buyer, and an ESOP.

Chinese Company to Acquire South African Oil Refinery... with an Employee Ownership Twist

The Chinese state-owned company Sinopec has tentative government approval to acquire a controlling interest in Chevron South Africa, currently a subsidiary of U.S.-based Chevron, although the deal is still subject to final approval by the government and a right of first refusal by its current shareholders. As quoted in the January 12 edition of the Times (South Africa), Ebrahim Patel‚ Minister of Economic Development, said that, the terms of the deal would increase the percentage of shares owned by employees from 25% to 29%.

Author biography and other columns in this series

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