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admin
632 Posts |
 Posted - 27 Dec 2006 : 11:47:05
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In considering implementing an employee share ownership plan (ESOP) in your organisation, there are likely to be many areas of important detail which will require answers from individuals and organisations who are specialists in ESOPs in Australia.
The AEOA is not in the advisory business, but it is able to refer you to a specialist who can help further. For a start, you should view the “Consultants” page on this web-site for the list of consultants who have agreed to abide by the “Consultancy Policy” of the AEOA (which you can also view on that page).
The AEOA is a non-profit association established under the Incorporated Associations Act of New South Wales in November, 1986.
The association’s aims are as follows:
• To promote the benefits of employee ownership;
• To encourage research into productivity and other benefits of employee ownership;
• To encourage the development of financial facilities in order to promote employee ownership;
• To work with government at all levels to develop and preserve taxation and other incentives to promote employee ownership;
• To provide services and assistance to its members.
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admin
632 Posts |
Posted - 22 Mar 2007 : 04:48:17
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Consulting on Employee Share Ownership Plans (ESOPs)
ESOPs can be complex and rule-driven plans, with several pitfalls for the unwary as well as potentially unexplored advantages. To set up a plan, you need sound advice and seasoned professional advisors. At a minimum, private companies and unlisted public companies need an experienced ESOP consulting firm and an independent valuation expert; it is highly likely that others will enter the picture, such as a third-party administration firm to handle the ongoing operation of the plan. An Association such as the AEOA cannot - or should not - handle the actual creation or administration of your plan, but we do offer several key consulting resources:
• Free general advice for members:
As an AEOA member, you can call or email us for information. Over the past two decades, for example, many people have joined the AEOA when they were evaluating whether or not to have an ESOP, because they know they will be able to associate with others who have taken similar paths and thus seek information about what to do and where to go to do it. Others join at different times in the life cycle of their ESOP in order to gain our members’ insights.
• Paid consulting and access to service providers:
Whether or not you are a member, consulting advisors on our “Consultants’ List” - who are members of the AEOA (see our "Consultants Policy" on the Consultants web-page)- can assist you with what kind of plan to set up, what the issues are in creating an ESOP, how to communicate plans effectively, how to create ownership cultures, and other concerns. Members can also receive advice on what kinds of providers they need and how to choose them.
• Speaking:
The AEOA can arrange for a qualified person to speak at your company, trade association, or other meeting. In all cases, we need at least to be reimbursed for travel costs. Generally, we would also request an honorarium to compensate us for our time as the AEOA is an entirely self-sustaining organization. These fees are negotiable.
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admin
632 Posts |
Posted - 16 May 2007 : 04:37:12
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Choosing a Consultant
One of the questions we are asked most often is “how do I choose consultants to set up my employee ownership plan?”.
There is no shortage of people claiming to have expertise in this field. From time to time, we hear from people that their advisors told them they had a profound understanding of employee share ownership law and processes, only to find out later that they were not as expert as they claimed. Choosing well qualified, experienced people is essential – the penalties for plan disqualification, poor plan administration, improper evaluations, inadequate repurchase liability analyses, and other problems can be severe for owners and employees alike. While there is no formula for choosing your advisers, there are some key questions to ask. The following might assist.
In picking a consultant “team”, you will need, at least, a lawyer to draw up your plan and probably a plan administrator as well. If it is a private or unlisted company ESOP, you will also need a valuation specialist and a business adviser to negotiate with the lender to the ESOP. You may also need an independent trustee, a financial adviser and a communications/participation consultant. Some people find the best approach to this is to hire a “packager” – someone who can bring together a team of consultants to do each of these tasks. The packager would serve as your primary contact, making life simpler, if more perhaps more costly.
If you are not well prepared yourself and clear about what you want – particularly with regard to your employee ownership philosophy and objectives – choosing an ESOP consultant might not be so easy. For a start, they differ in ESOP philosophy and approaches themselves. Your ESOP lawyer should at least share your approach to employee share ownership. You will also be wanting a fee and time schedule that is comprehensive.
In terms of plan administration, much of this is record-keeping, so experience and price can be the key determinant here (unless you want to do this in-house).
You might also need separate people to help with financial advice to employees and communications and employee participation issues. If it is an ESOP in a private company, you may also want help with investment banking and feasibility studies, though these are usually only necessary if you are looking at a leveraged ESOP buyout.
Where to start looking? For a start, the AEOA has a list of ESOP consultant members on its web-site. As members of the AEOA, this shows that they are interested enough in the subject to be at least a good candidate (though they have also paid for the privilege of being listed). Before hiring, see the “AEOA Policy on Consultants” on the “AEOA ESOP Consultants” web-page at: http://www.aeoa.org.au/0024/default.asp?id=29 .
In terms of hiring local people who claim to have the expertise – while having people nearby is convenient, location should be a lower priority than other factors.
When you do decide to hire, remember that philosophy will be as important as price and experience for the “outcome” you are looking for.
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admin
632 Posts |
Posted - 17 May 2007 : 06:32:09
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Ethics and the ESOP Practitioner
What makes an ESOP practitioner “ethical”? And should we even ask? After all, ESOP practitioners are members of various professions, each of which has its own professional association and standards. Isn’t it enough for ESOP practitioners to meet these guidelines for behaviour?
Perhaps. But ESOPs seem to occupy a higher moral ground than other aspects of corporate organisation. So ESOP practitioners can help determine whether ESOPs actually do meet these higher standards. While practitioners are limited in just what they can ask a client to do, their influence is significant nevertheless. It is important therefore that we – as an employee ownership community – begin to define what we consider acceptable from ESOP professionals.
The AEOA agrees that the following represents a consensus of views on minimally acceptable standards:
1. An adviser who assists a company, owner, manager or employee group, shall fully discuss the pros and cons of employee share ownership plans before establishing an ESOP.
2. Included in these discussions will be the following topics:
• Legal requirements
• Plan administration
• Communications re the ESOP
• Participation intended to give employees a voice in their workplace
3. Where the ESOP involves a private or unlisted company, the following topics will also be covered:
• Valuation processes
• Feasibility
• Repurchase liabilities
• Trustee responsibilities
4. In the conduct of professional duties, an ESOP adviser shall avoid dishonest, deceitful, fraudulent, or knowingly illegal acts.
5. An ESOP adviser shall:
• Place the interests of clients ahead of their own
• Maintain independence of thought and action
• Hold privileged information about their clients in strict confidence.
6. ESOP practitioners should let their clients know if another plan would work better than an ESOP. Attractive as ESOPs are, they are not right for every situation. A profit sharing plan may better meet employer needs, for instance. ESOP practitioners should let clients know what the options are, even if the practitioner does not offer a speciality in that plan.
7. If a practitioner is not fully qualified to handle a situation, he or she should be willing to enter into a cooperative relationship with a practitioner who is. Practitioners should accurately represent their experience, be direct about any limitations and be willing to give referrals to clients.
8. Practitioners should stress the importance of explaining how the ESOP works to employees.
While the above represent areas of agreement on principle and practice, the following remain issues of ethical concern where practitioners are often placed in difficult positions.
1. What should a practitioner do if a plan would benefit current owners, or other investors in the deal, but not employees? For instance, consider a company that can convince a lender to loan it enough money to buy a retiring owner’s shares, but whose cash flow would be sufficiently impaired by repaying the loan so as it would be necessary to sell capital assets - or even the entire company – to repay the loan. The new employee owners could be forced to sell part or all of their company, costing many of them their jobs.
2. How far should a practitioner go in manipulating ESOP tax advantages, even when it is clear that the result could be something that the Government did not intend? Such instances result in very negative publicity for ESOPs.
3. To what extent should ESOP practitioners push “good” ESOPs? For instance, how responsible is a practitioner to let clients know of the critical importance of employee participation to corporate performance in ESOP firms? ESOPs can improve employee motivation and productivity, but there is little mention usually made of the difficult steps needed to make this actually happen. Telling clients they need to set up effective participation programs can discourage some clients from proceeding with an ESOP at all; telling them nothing about the issue may be failing to advise them of one of the most important aspects of ESOPs.
These issues often place the ESOP practitioner in a difficult position. Acting in the best interests of employees and the future of ESOPs in each instance could mean a short term reduction in the number of clients a practitioner has. Acting against these interests could mean that ESOPs will suffer in the long run. All share a common dilemma. On the one hand, the professional has a responsibility to give the client the best advice for the client’s needs; on the other hand, the professional has (or should have) a responsibility to the purposes of employee ownership.
The growth of ESOPs depends on the image ESOPs present to the world. That image depends in large part on what ESOP companies actually do – but what they do depends in part on what consultants advise them to do.
(With thanks to the US National Centre For Employee Ownership - www.nceo.org - whose various articles on this topic have contributed to the development of this policy piece).
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admin
632 Posts |
Posted - 24 Mar 2008 : 16:10:54
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Making Sure Consultants Work for You.
By Corey Rosen, CEO, National Centre for Employee Ownership, US.
From: Employee Ownership Report, January/February 2007, NCEO.
Installing and managing an employee-ownership plan can be costly, complicated and fraught with choices that will have critical implications down the road. Too often, companies end up with plans that either cost more than they should or result in plan designs that do not work well because they have managed their consultants poorly. These are, however very avoidable problems.
Choose Real Experts
There would be several times more employee-ownership plans than there are if all the people who claim to have installed or managed them actually had. There is strong temptation for companies to choose lawyers, accountants, appraisers, and other plan advisers because they are local, work for a large reputable firm, already have a relationship with the company or claim they have expertise they don’t. Resist that urge. Find people who really are experts. They should belong to the major employee-ownership organizations. If they have written for journals or spoken at professional meetings, even better. They should be willing to provide a list of clients for whom they have set up or managed plans (and you should call a few). And make sure when you do choose a provider to choose the individual not the firm. The firm may have very capable people, but you may not be assigned one, especially in larger firms.
Controlling Costs
You can keep costs somewhat lower if you spend time beforehand getting educated about how the plans work. That way, you won’t have to pay an attorney or other consultant hundreds of dollars an hour for something you could have learned through reading a $25 book or attending a Webinar. Similarly, make sure your professional advisors have the data they need presented in the format in which they need it. That will both help keep costs down and avoid errors.
Know Your Choices
These days, if people have a significant medical issue, they often educate themselves through resources on the Web or elsewhere before making a final choice with their doctor. That way, the patient has more control over the choice that is made. Setting up an employee-ownership plan is a major step in your business as well.
Very often plan advisors (especially those with less experience) will say something like “this is how we typically structure an ESOP” or “with companies like yours, we normally recommend options.” The motive may be benign— the consultant wants to make the decision easier (and cheaper) for you or genuinely believes this is the best way to go. It may also just be laziness (not asking you the right questions to see what you really need), lack of knowledge about alternatives, or strong personal preferences.
For instance, maybe your advisor told you that in an ESOP, you should delay distributions as long as possible. That’s a good idea for many companies, but a bad idea for others. Or maybe your lawyer has told you that stock options are the way to go when, as a closely held company with no plans to sell or go public stock appreciation rights might do the trick just as well with fewer complications. It might seem that there is a dizzying array of choices and considerations, but, in fact, there are relatively few key discussion points, such as vesting, allocation formulas, timing of distributions liquidity for ownership interests, ownership rights, and financing. It will not take long to become reasonably educated about the pros and cons of each issue.
To find out, have a look at the other forums on this discussion board, particularly “Going Ahead with Your ESOP”, which attempts to lay out the key choices and language used for them.
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admin
632 Posts |
Posted - 01 Jun 2009 : 07:52:40
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Communicating ESOPs in your Company
ESOPs should not be presented as more than they are.
One of the basic errors is to present your company Employee Share Ownership Plan (ESOP) as something more than it is intended to be. A company that provides an ESOP simply as an additional employee benefit should not attempt to tout it as a plan to make everyone a partner in the business. Employees will immediately spot the phony rhetoric and turn their backs on the plan.
If, on the other hand, an ESOP is intended to promote “partnership” in the company, then those designing the plan need to reject the temptation to tokenism. If the ESOP is to have an effective role in transforming company culture, then the ESOP must be designed to cut in the employees in a significant way. The efficiency, productivity, and employee retention gains associated with ESOPs show themselves in a sustained way only when the employees acquire a substantial stake in the business
ESOPs aren’t retirement plans
An ESOP should not be promoted as a retirement plan. In Australia, superannuation is designed for that. Though certainly a savings vehicle, an ESOP is quite different from “super”. For one, it provides an accessible savings pool, something attractive to employees who are typically irked by the fact that they are obliged compulsorily to lock up money in a “super” fund. To talk up the supposed retirement advantages of ESOPs would go down with the workers like a lead balloon.
ESOP’s aren’t risk free
Also, never pretend that there is no “downside” to owning shares via an ESOP. Shares go up and down in price. ESOP shares are no different. So an ESOP engages a certain amount of risk: just like – come to think of it – superannuation.
Of course, companies could reduce the risk to employees by offering all-employee option plans. If the bosses can have options, why not the rank-and-file? So there is something quite practical that companies can do themselves to reduce ESOP risk – treat the employees just as if they were the senior managers.
From: Employee Ownership Group (Australia) at www.employeeownershipgroup.com.au
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