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Initial ESOP Communications. ESOP Association Two-Day Conference Las Vegas, Nevada 9:00 AM -- November 4, 2004. Loren Rodgers Ownership Associates. Agenda. ESOP Training Getting the Most from Required Communications Going Beyond the Nuts and Bolts Tips for Making it Work. -1- - PowerPoint PPT Presentation
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Initial ESOP Communications
ESOP Association Two-Day ConferenceLas Vegas, Nevada
9:00 AM -- November 4, 2004
Loren RodgersOwnership Associates
www.ownershipassociates.com
Agenda1.ESOP Training
2.Getting the Most from Required Communications
3.Going Beyond the Nuts and Bolts
4.Tips for Making it Work
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ESOPTraining
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Start with the Basics.
DESIGNING ESOP COMMUNICATIONS
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So, what is an ESOP?
Employee
Stock
Ownership
Plan
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ESOPs……are retirement plans,
and…they invest primarily in company stock.
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Cover the “hard issues”
DESIGNING ESOP COMMUNICATIONS
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The “Hard Facts”
• Participant legal rights
• Risks of ownership
• Benefit trade-offs
• Sole ownership / joint ownership
• Direct ownership / beneficial ownership
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ESOPs and Rights
Psychologically:Employee-Ownership means rights.
Legally:• Access to Plan Documents• Annual Account Statements• Voting on major corporate decisions
– Liquidation– Sale of substantially all assets– Recapitalization– etc.
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Describe the upside -- without making promises.
DESIGNING ESOP COMMUNICATIONS
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Research Highlights• ESOP companies, on average, outperform
non-ESOP companies by approximately 2.3% on a number of measures.
• ESOP companies file for bankruptcy less often than non-ESOP companies.
• On average, ESOP participants have approximately 2.5 times more retirement assets than non-ESOP participants, without a loss in
income.
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Share the “big picture” – and employees’ role.
DESIGNING ESOP COMMUNICATIONS
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Standard Employment Deal
8 hours pay
8 hours work
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8 hours pay
8 hours work
Ownership Rewards
Ideas and Effort
Employee-Ownership “New Deal”
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Ideas and Effort
DepartmentPerformance
IndividualPerformance
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Ownership Rewards
StockValueESOP
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DepartmentPerformance
IndividualPerformance
StockValueESOP
Employee’s Return on Effort
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Required every year, after the books have been closed.
Three main methods:• Asset• Income• Comparison
Slide 29
Stock Valuations
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Use images.
DESIGNING ESOP COMMUNICATIONS
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Total allocation = 850 shares
If the total allocation is 850 shares,Suppose eligible payroll is $2,500,000
Total payroll = $2,500,000
Eligible Payroll ESOP
Beth’s $25,000
and Beth earns $25,000
John’s $20,000
and John earns $20,000.
Beth’s 8.5 shares
Beth gets 8.5 shares
John’s 6.8 shares
and John gets 6.8 shares.
Stage 2: Allocation
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Getting the Most from Required
Communications
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Account statements and the SPD can help… or hurt.
DESIGNING ESOP COMMUNICATIONS
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1
3
2
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Account Statement: Part 1
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Account Statement: Part 2from the year beforecurrent year allocation from the companyInvestment gain or loss
distributions
additions from other people forfeiting unvested value
miscellaneous bookkeeping
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Account Statement: Part 2
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Account Statement: Part 2
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Account Statement: Part 3
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Going Beyond the
Nuts and Bolts
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ESOPs are not an “off-the-wall” idea.
DESIGNING ESOP COMMUNICATIONS
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Number of ESOP Companies in the US
0
2,000
4,000
6,000
8,000
10,000
12,000
1974 1981 1984 1987 1990 1996 2000
Growing Popularity
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ESOPs in the United States
201 or more
101 to 200
71 to 100
51 to 70
0 to 50
Number of ESOPsin Each State
Where are they? Map of the U.S.
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Where are they in New England?
Berlin City Car Center
Cianbro Corporation
Howell LaboratoriesJ & S Oil Co.
Sebago Technics
MO
MO
MOMO
MO
MO
MO
MO
Hypertherm
O’Connor GMC
AdmixCirtronix
DENS PartnersNormandeau Associates
Carris ReelsKing Arthur Flour
LITECONTROL
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Ownership means…
investment
employee involvement
a good benefit
equalitybogus
teamwork
incentive
what is it?
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The government actively supports ESOP development.
DESIGNING ESOP COMMUNICATIONS
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LONG, Russell Billiu, born: November 3, 1918; US Senate 1948 to 1986. Chairman, Committee on Finance. Died: May 9, 2003.
Russell Long
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Legislative Balance
Legislative Goals Business Concerns
• Increase competitiveness
• Share ownership broadly
• Protect retirement savings
• Tax benefits
• Stable ownership
structure
• Orderly Process
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Oversight of ESOPs
• Internal Revenue Serviceensures that tax benefits only go to companies who run the ESOP equitably and fairly according to the rules.
• The Department of Laborensures that employees receive a fair benefit from the ESOP.
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Describe the ESOP transaction... and the motivations for the ESOP.
DESIGNING ESOP COMMUNICATIONS
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Outside Purchaser
OurC
o
Sto
ck
Founding Shareholder
s
Smith and Others
The Transaction: Option A
What happens to
OurCo, Inc.?
OurCo Employees?
Our “OurCo Culture”?
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The ESOP:A Trust for
OurCo Employees
OurCo StockOurCo, Inc.
(Cash and Loans)
OurCo Stock
Founding Shareholder
s
Smithand Others
The Transaction: Option B
Stays intact!
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People want to know: why are we doing this?
DESIGNING ESOP COMMUNICATIONS
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Investment
Return
Incentive OnlyLow to
MediumLow
(-1 to 2%)
Culture + Incentive HighHigh(5 to 13%)
“Return on Ownership”
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The Five Challenges
1.The Policy Challenge
2.The Interpersonal Challenge
3.The Literacy Challenge
4.The Information Challenge
5.The Entrepreneurship Challenge
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Build systems to ensure perceptions of fairness and trust.
DESIGNING ESOP COMMUNICATIONS
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Tips for MakingIt Work
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1. Support Middle Managers
2. Repeat / Use Multiple Channels
3. Use Structured Peer-to-Peer Learning
4. Warn About “First Year Dip”
5. Use Games
6. Be Careful with Projected Account Value
7. Interactive Learning
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Tips1. Support Middle Managers
2. Repeat / Use Multiple Channels
3. Use Structured Peer-to-Peer Learning
4. Warn About “First Year Dip”
5. Use Games
6. Be Careful with Projected Account Value
7. Interactive Learning
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Common Feelings About Ownership
Wait and See
What is it?
Fear
Enthusiasm
Cynicism
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Common Feelings About Ownership
Write down one letter:
a. Fear
b. Cynicism
c. What is it?
d. Wait and See
e. Enthusiasm
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1. Physical Working Conditions
2. Election of Employees’ Committee
3. Speed of Production
4. Job Assignments
5. Safety Rules and Practices
6. Quality Standards and Measurement
7. Hiring
8. Promotions, Performance Evaluation
9. Equipment Layout
10. Asset Purchases
11. Employee Compensation and Benefits
12. Firing
13. Marketing and Advertising Strategies
14. Raising Capital, Relationships with Banks and Investment Groups
15. Product, Technology, and Investment Strategy
16. Lay-off Policy, Employment Levels
17. Management Compensation
18. Distribution of Profits (dividends, reinvestment, debt reduction)
19. Selection and Oversight of Senior Management
20. Constitutionalism: Setting and Moving Decision-Making Boundaries
21. Selection of Board of Directors
22. Fate of the Company: merger, sale, major location change
Standard List of Corporate Decisions
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22. Fate of the Company: merger, sale,major location change
21. Selection of Board of Directors
20. Constitutionalism: Setting & MovingDecision-Making Boundaries
19. Corporate Strategy
18. Distribution of Profits (dividends,reinvestment, debt reduction, etc.)
17. Selection and Compensation ofSenior Management
16. Lay-off Policy, Employment Levels
15. Product, Technology, andInvestment Strategy
14. Raising Capital, Relationships withBanks and Investment Groups
13. Marketing & Advertising Strategy
12. Firing
11. Employee Compensation & Benefits
10. Asset Purchases
9. Equipment Layout
8. Promotions, Job Evaluations
7. Hiring
6. Quality Standards and Measurement
5. Safety Rules and Practices
4. Job Assignments
3. Speed of Production
2. Election of Employees’ Committee
1. Physical Working Conditions
CORPORATEPOLICY
Influence Chart
Types of Influence
MANAGERIALOPERATIONS
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Board of Directors
22. Fate of the Company: merger, sale,major location change
21. Selection of Board of Directors20. Constitutionalism: Setting & Moving
Decision-Making Boundaries19. Selection and Oversight of Senior
Management18. Distribution of Profits (dividends,
reinvestment, debt reduction, etc.)17. Management Compensation16. Lay-off Policy, Employment Levels15. Product, Technology, and
Investment Strategy14. Raising Capital, Relationships with
Banks and Investment Groups13. Marketing & Advertising Strategy12. Firing11. Employee Compensation & Benefits10. Asset Purchases9. Equipment Layout8. Promotions, Performance
Evaluation7. Hiring6. Quality Standards and Measurement5. Safety Rules and Practices4. Job Assignments3. Speed of Production2. Election of Employees’ Committee1. Physical Working Conditions
OVERALL POLICYAND STRATEGY
Influence Allocation Chart
Types of Influence
CORPORATEManagerialOperations
DEPARTMENTLocal Policy,Planning andCoordination
Management
Shareholder Voting
DecisionMaking
Represent-ation Voting
2001 Ownership Associates, Inc. Cambridge, MA.
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Board of Directors
22. Fate of the Company: merger, sale,major location change
21. Selection of Board of Directors20. Constitutionalism: Setting & Moving
Decision-Making Boundaries19. Selection and Oversight of Senior
Management18. Distribution of Profits (dividends,
reinvestment, debt reduction, etc.)17. Management Compensation16. Lay-off Policy, Employment Levels15. Product, Technology, and
Investment Strategy14. Raising Capital, Relationships with
Banks and Investment Groups13. Marketing & Advertising Strategy12. Firing11. Employee Compensation & Benefits10. Asset Purchases9. Equipment Layout8. Promotions, Performance
Evaluation7. Hiring6. Quality Standards and Measurement5. Safety Rules and Practices4. Job Assignments3. Speed of Production2. Election of Employees’ Committee1. Physical Working Conditions
OVERALL POLICYAND STRATEGY
DirectInfluence
SharedInfluence
RepresentativeInfluence
ConsultativeInfluence
Influence Allocation Chart
Types of Influence
CORPORATEManagerialOperations
DEPARTMENTLocal Policy,Planning andCoordination
Em ployee Partic ipationCommittees/Task Forces
W ork Team s
Management
Shareholder Voting
2001 Ownership Associates, Inc. Cambridge, MA.
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The Present at CCC
1 Fate of the Company: merger, sale, etc.
2 Selection of Board of Directors
3 Approve Minutes
4 Distribution of Profits
5 Holding Senior Management Accountable
6 Senior Management Compensation
7 Capital Improvement (Investment Strategy)
8 Manufacturing Technology
9 Selection of Senior Management
10 Acquisitions / Start Ups
11 Product Development
12 Raising Capital, Rel.'s with Banks, Investors
13 Marketing & Advertising Strategy
14 Employee Compensation
15 Management (Exempt) Hiring
16 Constitutionalism / Governance
17 Quality of Worklife Issues
18 Communications / Training
19 Allocation of Employee Benefits (Mgt. Budget)
20 Product Pricing
21 Lay-off Policy, Employment Levels
22 Firing
23 Equipment Purchases 24 Wage Changes, Raises
25 Setting Production Standards 26 Equipment Layout
27 Setting Safety Rules and Practices
28 Setting Quality Standards and Measurement
29 Performance Evaluation
30 Promotions 31 Disciplinary Action
32 Hourly (Non-Exempt) Hiring
33 Enforcing Safety Rules and Practices
34 Enforcing Quality Standards and Measurement
35 Determining Work Assignments
36 Election of Steering Committee Representatives
37 Participate in Taskforces and Committees
38 Local Work Environment
Site Management
Employees
Supervisors
Shareholders*
Steering Committee
Senior Management
Board of Directors
Dept. Managers
President / Vice-President
ISS
UE
S (
Y-A
XIS
)
PRIMARY AUTHORITY (Z-AXIS)
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