How an ESOP Can Help Solve Family Business Succession Planning Problems

When it comes to running a family owned business, succession planning is an often overlooked yet essential consideration. In fact, many family companies don’t last beyond a single generation. For those that do, succession planning is a must.

But the subject of ownership transition can be thorny in a family firm, and the issue can become even more complex when some children prefer to remain involved in the business while others pursue their own interests.

23rd Annual ESOP Economic Performance Survey (EPS)

The Employee Ownership Foundation published the results of the 23rd Annual ESOP Economic Performance Survey (EPS)

ESOPs and Inclusive Capitalism

ESOPs Outperform 401(k) Plans by 19%

The August 1, 2013 Employee Ownership Update discusses how the average rate of return (ROR) for ESOPs has outperformed the 401(k) plan average ROR by 19% from 1996 to 2010.  Leveraged ESOPs had an even higher average ROR.

21st Annual ESOP Economic Performance Survey (EPS)

The Employee Ownership Foundation published the results of the 21st Annual ESOP Economic Performance Survey (EPS)

S Corporation ESOPs Perform Better During a Recession

A press release announced a new study, RESILIENCE AND RETIREMENT SECURITY: Performance of S-ESOP Firms in the Recession, that found that S Corporation ESOPs outperformed their non-ESOP counterparts during the recent recession in job creation, revenue growth, and providing higher wages and retirement security:

Segregation of Accounts and Rebalancing/Reshuffling Update

The December 1, 2009 Employee Ownership Update is online and discusses the following:

Pros and Cons of SARs and Stock Options

The November 2, 2009 Employee Ownership Update is online and discusses the following:

Long-Term Ramifications of LaRue

The August 31, 2009 Employee Ownership Update is online and discusses the following:

ESOP Executive Compensation Survey

TheApril 15, 2009 Employee Ownership Update is online and discusses the following:

  • Results in from NCEO ESOP Executive Compensation Survey
  • New NCEO Report Looks at Equity Issues in the Downturn
  • Great Game of Business Offers $315 Off Conference Rates for Readers of This Column

The Update discusses the results of the NCEO's survey of executive compensation in 317 ESOP companies:

The data show that pay for ESOP executives remains fairly modest. The median base compensation for CEOs is $200,000 and total compensation $292,000. While 71% get cash-based incentive pay, only 15% receive any kind of stock-based awards outside of the ESOPs. The median company contribution to the ESOP was $17,900. CFOs had median cash compensation of $120,000 and total compensation of $150,000. Thirteen percent received some kind of stock awards.

The data also cover how awards are determined. In 64% of the cases, boards decide alone, while 30% use compensation consultants. Eighteen percent have independent board compensation committees.

It also discusses some highlights from a newly released NCEO issue brief that explores equity compensation plan issues in a down market:

  • The most popular option exchange programs trade options for cash (48%) and options for stock (36%).
  • Only 31% of companies allow directors to participate in options exchanges, and 58% allow CEOs.
  • The median options-for-options exchange ratio is 1.4 to 1.
  • Most exchange offers are treated as tender offers under SEC rules and must be carefully designed to be compliant with those rules.
  • Changes in market volatility in the last year have made prior valuation assumptions for many companies outdated. No method is perfect for valuing new awards. The issue is not just one for accountants to worry about. The valuation of options becomes a human resources issue, especially when exchange ratios are based on assumptions about the present value of new awards.
  • In some jurisdictions outside of the U.S., an exchange program will trigger taxation.
  • Companies whose stock prices have fallen sharply are often finding they do not have enough authorized shares to satisfy the number of shares needed for exercise in their employee stock purchase plans (ESPPs).
Keep Your ESOP On Track and On Time
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