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The Employee Ownership Update

Loren Rodgers

July 2, 2018

(Loren Rodgers)

NCEO Employee Ownership Index Doubles S&P Performance for Its First Year

On June 19, 2017, the NCEO created the Employee Ownership Index, an index of 28 publicly traded companies that had both broad-based employee ownership and had won one of three major national employer rating awards, each of which puts a high emphasis on employee engagement (Fortune's Best Companies to Work for, the Gallup Engagement Index, and the Enterprise Engagement Alliance awards). Broad-based employee ownership included ESOPs where there was an average account balance of $30,000 or more and companies that provided equity grants to most or all full-time employees.

For the first year, the Employee Ownership Index has a 30.3% return; the S&P 500 had a 15.5% return. The index was expanded to 30 companies this June.

Research has overwhelmingly shown that companies that have broad-based ownership and high employee involvement in work-level decisions outperform other companies. This is the first time, however, that an index has been created that people can invest in.

The fund is available at Motif, an online trading platform that allows users to create their own "motif," or basket of stocks, to invest in. Investors can make a motif an option for other users to buy. When you buy a "motif," you are not buying a fund but rather are investing in all the stocks and/or ETFs that make up that motif. If you want to invest in the Employee Ownership Index, you need to go to the Motif website and open an account. Once you have done that, you can trade the Employee Ownership Index. Full disclosure: the NCEO receives a nominal ($1) commission on each trade.

Influential UK Report Urges More Government Support for Employee Ownership

The Ownership Dividend, a new report from an independent panel of leading business leaders in the UK, urges the government to take several steps to promote employee ownership, which it sees as crucial to improving the UK's economy and creating a more equitable society. The group was chaired by Baroness Sharon Bowles, a member of the Liberal Democratic Party. She is often described as the most influential Briton in the development of European Union policy and the most influential woman in politics in the UK.

Key proposals include greater outreach and education efforts, support for developing worker cooperatives, greater tax benefits for employee ownership trusts (somewhat like ESOPs in the U.S.), higher limits on deductibility in employee savings plans focused on company stock, support for mutuals converting to employee ownership (these are social service organizations typically owned by local governments), and regulatory changes.

New Website Showcasing Employee Ownership

Employee-Owned America is a new website at that features news, events, and fresh ideas about employee ownership. Edited by John Case, a veteran journalist and member of the NCEO's board of directors, Employee-Owned America highlights the stories of employee-owned companies, the "drumbeat" of news, and thought-provoking essays covering topics from legislation to a thought experiments: what if Walmart were employee-owned? How do acquisitions fit into the employee ownership landscape?

Supreme Court Declines Case on Tolling Agreements and ERISA Rules

In Preston v. Acosta, No. 17-1238 (U.S. June 25, 2018), the Supreme Court refused to hear a challenge to an 11th Circuit decision (Preston v. Acosta, Oct. 12, 2017) that ruled that the CEO and trustee of the ESOP at TPP Holdings could not invoke a tolling agreement to halt a DOL lawsuit alleging that he had caused the ESOP at the company to overpay for the purchase of his shares in 2006 and again in 2008. Before filing suit, the DOL and Preston tried to reach a settlement and entered into a series "tolling agreements" that provided the DOL would delay any litigation while the efforts were pending. No settlement was reached, and the DOL sued in 2014, one day before the expiration of the agreed-upon tolling period. Despite their agreement not to assert a time bar to litigation, the defendants moved to dismiss on the ground that all alleged violations occurred before December 30, 2008, six years prior to the filing, and thus were not permitted under ERISA's limitation-of-actions provision. The court ruled that the agreements took precedence, and the Supreme Court let that ruling stand.

Recruitment Tip

When interviewing candidates, your employee ownership plan may not seem that real or salient if it is only company leadership promoting it. You can make it more real by inviting a non-management employee into the interview with people you are hoping to attract. Hearing about ownership from an employee will mean much more—and it will make the employee very proud to work there.

Author biography and other columns in this series

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