In part one of this two-part blog series, we dicsussed how shareholders, the Board of Directors, and the ESOP trustee all play a role in developing and maintaining an ownership culture. In this article, we'll take a look at the roles of officers/management, employees, and the Plan Administrator.
Many ESOP companies strive to build and sustain a strong ownership culture that will increase shareholder value. Developing an ownership culture is an ongoing process that evolves over time. A strong ownership culture can be driven by the CEO, sometimes referred to as the keeper of the culture, and the Board of Directors (“Board”) through corporate governance. This two-part article series will review the various stakeholders in the corporate governance of an ESOP company, explore their roles in the process, and things stakeholders can implement to strengthen the culture.
Many business owners that have implemented or are exploring an employee stock ownership plan (ESOP) many not have an active Board of Directors in place. Often times the Shareholder(s) are operating as the Director(s) of the company as they manage the day-to-day operations, and are not separately meeting as a Board to formally achieve the Corporate Governance responsibilities of the Board. Of those that do have a functioning Board, many operate the Board as an extension of the senior management team to make short-term operational decisions, rather than long-term, strategically focused decisions in line with corporate governance best practices.
Cheryl Gallup is a Senior Business Consultant at ESOP Partners and has an extensive track record of delivering comprehensive business solutions to a variety of industries.
The headline flashed across my screen and I did a double take, then gasped, then let out a heavy sigh. Oh no. Mary Tyler Moore is gone. Moore became famous in her role on “The Dick Van Dyke Show,” but I watched her as Mary Richards on “The Mary Tyler Moore Show.” While the show was comedy, it was so much more to me and to women everywhere. It pushed gender equality and many other cultural issues into the mainstream. And to top it off, she was single, and it was her choice.
Another year end has come and gone! By February, many calendar year ESOPs are in the midst of the valuation and allocation cycle for the previous plan year. You're in a holding pattern, waiting to schedule employee meetings, and distribute participant statements. But it doesn't have to be this way. This is also the time of year when many companies do their annual performance and compensation reviews — which makes it a great time to prepare total compensation statements.
If you paid any ESOP or other qualified retirement plan distribution of $10 or more last year you will have to prepare and file some government forms: Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
The initial thought for many ESOP companies is to cram as much information into a single employee meeting as possible. After all, an ESOP meeting is a substantial commitment of time and resources by the organization, so why not use the time wisely, right? But information overload can be a challenge for employee owners. Because even if the message is a simple one that is delivered perfectly so that all employee owners can understand it, the retention of all of the information you just provided can be lost immediately after the meeting as employee owners go back to their daily responsibilities; soon forgetting the message.
Because you have invested significant time and resources in establishing and maintaining your ESOP, it makes sense to ensure that you are getting the most out of it. One effective way to maximize the benefits of your ESOP is to build and sustain an ownership culture. Studies have found that companies with a strong ownership culture outperform their counterparts.
The IRS has announced the 2017 pension plan limits, including the following:
401(k) Deferral Limit - $18,000
Annual Additions Limit - $54,000
Maximum Compensation Limit - $270,000
Catch-Up Contribution Limit - $6,000
Highly Compensated Employee - $120,000
ESOP 5-Year Distribution Threshold - $1,080,000
ESOP Additional Year Threshold - $215,000