The May 1, 2008 Employee Ownership Update is online and discusses the following:
- NCEO Launches Survey of Equity Compensation Practices in Private Companies
- Make Messages Stick
- The ESOP Repurchase Obligation and Stock Value
The Update discusses the debate about whether or not the repurchased obligation should affect stock value, including the NCEO's position:
More and more trustees believe it should. Not to reflect this value means the ESOP is arguably overpaying for shares of departing employees because the company's projected earnings do not reflect the emerging obligation. That means most participants end up worse off in the long run. But some other advisors argue that an outside buyer would make the obligation go away, and it is the outside buyer who is the theoretical buyer in calculating fair market value. Valuation consultants are also split on the matter. At the NCEO, we strongly believe, and have for years, that the repurchase obligation should normally be reflected in value (although there are some exceptions), but, in any event, ESOP fiduciaries need to look at this issue carefully.
Recommended Reading
The Update recommends Why Some Ideas Survive and Others Die....MADE to STICK as a book to help your internal communications process:
The book posits six key principles of sticky messages. They should be:
- Simple
- Unexpected
- Concrete
- Credible
- Emotional
- Stories
For instance, to communicate the potential benefit of an ESOP, have a former employee (or one with another company) come tell her story about how the ESOP distribution helped her put a child through college. The message is a story, is emotional, is concrete, is credible (because the source is not management or a lawyer), is not something people would expect, and is simple.
The authors also maintain the MADE to STICK Blog
Finally, the Update discusses how the NCEO is conducting an equity practices survey.
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