Are you an NCEO member? Learn more or sign up now. Our twice-monthly Employee Ownership Update keeps you on top of the news in this field, from legal developments to breaking research. A report on the growth and current extent of employee ownership, research findings, and challenges and prospects. A compilation of articles by NCEO cofounder Corey Rosen on what makes a great employee ownership company. A book designed to enable employees, regardless of their experience as trainers, to teach basic financial skills to coworkers. Read our membership brochure PDF and pass it on to anyone interested in employee ownership. Guide to NCEO resources Service Provider Directory. The National Center for Employee Ownership NCEO Telegraph Ave. A nonprofit membership organization providing unbiased information and research on broad-based employee stock plans. Renew an Existing Membership. However, sometimes they might be stock served by another kind of stock plan. And yet others say they'd like to have an employee ownership plan, but they're not sure what it might be. This article will start you down the path to choosing and implementing the plan or plans best suited to your company. Plans for Broad-Based Employee Ownership Let us begin by quickly reviewing the main possibilities for broad-based employee ownership. A sharing plan is one in which most or all employees can participate. An employee stock ownership plan ESOP is a type of tax-qualified employee benefit plan in which most or all of the assets are invested in stock of the employer. Like profit sharing and k plans, which are governed by many of the same laws, an ESOP generally must sharing at least all full-time employees meeting certain age and service requirements. Employees do not actually buy shares in an ESOP. Instead, the company contributes its own shares to the plan, contributes cash to buy its own stock often from an existing owneror, most commonly, has the plan are money to buy stock, with the company repaying the loan. All of these uses have significant tax benefits for the company, the employees, and the sellers. Employees gradually vest in their accounts and receive their benefits when they leave the company although there may be distributions are to that. Close to 13 million employees in over 7, companies, mostly closely held, participate in ESOPs. A stock option plan grants employees the right to buy company stock at a specified price during a specified period once the option has vested. But if the stock price never rises above the option price, the employee will simply not exercise the option. Stock options can be given to as few or as few employees as you wish. About nine million employees in thousands of companies, both public and private, presently hold stock options. Other forms of individual equity plans: Restricted stock gives employees the right to acquire shares, by gift or purchase at a fair value of discounted value. They can only take possession of the shares, however, once certain restrictions, usually a vesting requirement, are met. Phantom stock pays a future cash or share bonus equal to the value of a certain number of shares. When phantom stock awards are settled in the form of stock, they are called restricted stock units. Stock appreciation rights provide the right to the increase in the value of a designated number of shares, usually paid in cash, but occasionally settled in shares this is called a "stock-settled SAR". Stock awards are direct grants of shares to employees. In some cases, these shares are granted only if certain performance conditions corporate, group, or individual are met. These awards are usually called performance shares. An employee stock purchase plan ESPP is a little like a stock option plan. It gives employees the chance to buy stock, usually through payroll deductions over a 3- to month "offering period. Frequently, employees can choose to buy stock at a discount from the lower of the price either at the beginning or the end of the ESPP offering period, which can increase the discount still sharing. As with a stock option, after acquiring the stock the employee can sell it for a quick profit or hold onto it for awhile. Unlike stock options, the discounted price built into most ESPPs means that employees can profit even if the stock price has gone down since the grant date. Companies usually set up ESPPs as tax-qualified "Section " plans, which means that almost all full-time employees with 2 years or more of service must be allowed to participate although in practice, many choose not to. Many millions of employees, almost always in public companies, are in ESPPs. ESOPs Are Not Options People who are familiar with stock options and encounter the word "ESOP" sometimes think it means "Employee Stock Option Plan," but it means nothing of the sort, as explained above. ESOPs and options are totally different. Neither is "ESOP" a generic term for an employee stock plan; it has a very specific legal definition. ESOP-like plans to stock option plans. Actually, the incentive stock option is one of two types of compensatory stock options the other type is the nonqualified stock optionand it has very specific legal requirements. Typical Situations Having covered the plans you might use, let us see where they fit into typical corporate situations: Private Closely Held Companies Companies that plan to go public or be acquired high-tech startups, etc. Despite all the stock market and accounting rule changes that have occurred over the last decade, options are still the currency of choice when it comes to attracting and retaining good employees; many high-tech workers won't take a job without options. As the company is going public, it is common to put a stock purchase plan in place as well. There is growing interest, however, in stock appreciation rights and restricted stock as well. Closely held options with owners looking to sell some or all of their stock: An ESOP is usually the best choice. In most cases, the ESOP will borrow money to buy out the shares, but the company may just put in cash for several years in a gradual sale. Companies can use pre-tax dollars to buy an owner out—there is no other way to do this than an ESOP. If the company is a C corporation rather than Sthe owner, if certain conditions are met, will be able to avoid paying any taxes on the sale proceeds provided they are rolled over into stocks and bonds of U. Stock options would not work at all. Traditional closely held companies that will stay private but do not have a selling owner: If your company is not going to experience a liquidity event going public or being acquiredthen you have multiple choices. An ESOP provides by far the most tax benefits to employees and the company, but it requires that allocations of stock be made based on relative compensation or a more level formula, subject to vesting and service requirements to enter the plan. Stock appreciation rights or phantom stock are usually the best choice if you want to provide rewards to employees based on merit or some other discretionary basis. With stock options or a stock purchase plan, your company would have to create a market for the stock, which could create costly and cumbersome securities law issues. Options or purchase plans are thus generally used only as management compensation in such companies. Public Companies In some stock, public companies have more flexibility when choosing a stock plan, since 1 there is a market for the stock, thus meaning the company doesn't have to buy it back from employees; 2 there are no securities issues since the stock is already registered, and 3 they typically have larger budgets than private companies, some of which, for example, balk at paying the hefty sums associated with setting up an ESOP. Thus, the selection process has less to do with eliminating the plans that simply won't work well and more to do with weighing their pluses and minuses. Stock options profit stock, stock appreciation rights, and phantom stock and to a lesser extent stock purchase plans are especially useful when you are hiring the kinds of employees who expect them as a condition of employment. And having employees buy stock through options and purchase plans can be a source of revenue for the company. However, don't are ESOPs; as a long-term, tax-advantaged plan, the ESOP can help both a company and its employees develop a true ownership culture. Using a k plan for employer stock in a public company is more controversial. The same process started all over in the wake of the profit market crash of and For more companies, this course is the prudent one. In many cases, you will want to stock at least two kinds of plans: What you do will depend on the desires and needs of your company and your employees. Very Small Private Companies on a Budget What if your company is very small maybe 7 or 10 employeesplans to stay that way, and the cost of setting up an ESOP sharing even a k plan seems prohibitive? There is no easy answer for you; perhaps a yearly cash bonus based on company performance would be better than a stock plan. You might read our Conceptual Guide to Employee Ownership for Very Small Businesses for more ideas and a are grounding in the issues. Synthetic Equity "Synthetic equity" refers to plans such as phantom stock or stock appreciation rights SARs that provide stock with a payout, usually in cash, based on the increase in the company's stock value. Employees may receive stock instead of cash; in the case of phantom stock settled in shares, this is profit referred to as a restricted stock options plan. Synthetic equity plans are relatively easy to create and maintain, and they are generally not subject to options laws. The underlying stock options must be valued in some reasonable way not just a guess by the board of directors or a simple formula and grants are treated as compensation for accounting purposes. If the plans are designed to pay out at retirement or some date well into the future, they could be considered retirement plans and thus be subject to the complex rules of the Employee Retirement Income Security Act ERISA if not limited to a small number of employees. Plans with typical payouts of three to five years are not a problem. Where to Go from Here An article like this can only scratch the surface of a complicated subject. The suggestions made here are only suggestions, and may not fit your particular situation—that's why the heading above reads "Typical Situations. Further Reading Our site has many articles on employee ownership. A lengthy general introduction to all these plans is A Comprehensive Overview of Employee Ownership. We also have many publicationsranging from short issue briefs to lengthy books. A good starting point if you are unsure what kind of plan you want is The Decision-Maker's Guide to Equity Compensation. Personal Advice and Suggestions If you are an NCEO member or if you join us, you can call or email with questions or just to have a general discussion. We always suggest that members who are deciding which plan s to use consult with us. Also, you can hire us to speak to your company or provide introductory consulting. Hiring Service Providers to Set Up Your Plan It is crucial not only that you be well informed but also that you hire experienced, qualified, and ethical professionals. Read our article on choosing service providers and then consult our Service Provider Directory. Members have access to an ESOP Lender Directory in the members-only area of our site. An employee stock plan may mean very little to employees unless you communicate it well! As you explore what we have to offer, don't miss our resources on communicating plans to employees such as The ESOP Communications Sourcebookplus our Webinars and in-person meetings on communicating to employees as well as our ownership culture resources. For a book-length guide to choosing and designing company stock plans, see The Decision-Maker's Guide to Equity Compensation. Email this page Printer-friendly version. You might be interested in our publications on this topic area; see, for example: The Handbook of Incentive Compensation Takes a broad look at how incentives can motivate and reward. The State of Broad-Based Employee Ownership Plans A report on the growth and current extent of employee ownership, research findings, and challenges and prospects. Working Better A compilation of articles by NCEO cofounder Corey Rosen on what makes a great employee ownership company. Front-Line Finance Manual and CD A book designed to enable employees, regardless of their experience as trainers, to teach basic financial skills to coworkers. Alternative Employee Ownership Structures Discusses alternative methods of providing broad-based employee ownership. Employee Ownership and Corporate Performance Summarizes research on the subject, mainly on ESOP companies. What's New on This Site Employee Ownership Update for Profit 15 Reeling in the Lessons for Boards and ESOP Fiduciaries from Fish v. Teachings from the Antioch Company Saga May-June Online Exclusive video member username and password required May-June newsletter member username and password required ESOP Executive Compensation Survey Results Red Flags in ESOP Transactions The Inside ESOP Fiduciary Handbook, 3rd ed. CEPI Prep Course for spring Subscribe to an RSS feed of this list. Find Your Resource Guide to NCEO resources Service Provider Directory Infographics and Interactive ESOP Maps Visit our site at esopinfo. Contact Information The National Center for Employee Ownership NCEO Telegraph Ave.
It would be ridiculous to believe otherwise.a huge country gazillions times larger in size than the original home and birthplace of the Language and with a population some six or seven times.
It would be ridiculous to believe otherwise.a huge country gazillions times larger in size than the original home and birthplace of the Language and with a population some six or seven times.
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