esop committees – how they interact & setting up a communications committee the esop...
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ESOP Committees – How They Interact & Setting up a Communications Committee
The ESOP Association 2012 Las Vegas Conference & Trade Show
November 8th & 9th, 2012
Christopher Horner, Dickinson Wright PLLCTom Oettinger, The Onyx Group
Ali Jamshidi, CTL EngineeringJay Simecek, The Ohio Employee Ownership Center
1TEA November 2012
ESOP Committees – How They Interact & Setting up a Communications Committee
Agenda:IntroductionsOverview of committees in an ESOP
Legal requirementsThe Onyx ExperienceThe CTL Engineering ExperienceIssues When Creating a Communications CommitteeQ & A
2TEA November 2012
ESOP Committees – How They Interact & Setting up a Communications Committee
…… Issues to CONSIDERRolesMission / ScopeStructureMembership / RepresentationTermSelection / ElectionBudgetMeetingsBylaws
3TEA November 2012
The Big Picture
Linking employee ownership to corporate performance.• Employee ownership is not enough. • Research indicates that employee ownership plus employee
participation leads to increased corporate performance relative to employee ownership alone.
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Common Theme
• Goals: All committees have a common purpose: to facilitate the strategic mission of the corporation.
• Structure: All committees have a common philosophical underpinning: The objectives of the committee should dictate its characteristics.
• Resources: All committees should have access to the resource necessary and appropriate to achieve their objectives.
• Evaluation: All committees should be evaluated and modified to increase efficiency and achieve new strategic objectives.
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What is an “ESOP Committee”?
Administrative (Fiduciary) Committee Communications Committee Other “ESOP Committees”
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Fiduciary Committee
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Fiduciary Committee
Decision-making regarding administration of the Plan• Operation of Plan• Management of Plan assets
Advise the trustee of the ESOT• Dispositions of employer securities
May be a Named Fiduciary Under ERISA• Fiduciary duties
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Communications Committee
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Communications Committee
Decision-making regarding strategic employee ownership objectives (Authoritative)
Advise management and educate and train employee owners (Advisory)
Not necessarily subject to ERISA fiduciary duties
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Legally Required Communications
Summary Plan Description (“SPD”)– Summary of Material Modifications (“SMM”)
Summary Annual Report (“SAR”) Participant Statement Disclose Governing Documents
– Plan Document– Trust Agreement– Form 5500– Beneficiary Designation Elections
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Purpose of ESOP Communication Committees
Help implement the strategic vision of employee ownership through communication and education
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Roles:
Board sets the vision of employee ownership Management leads with primary role as communicatorsESOP Communication Committee employees involved in learning
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Key Communication and Education Roles
Communicate to employees that they are shareholders with a stake in the company’s future
Provide the knowledge and skills needed to think and act like owners
Develop processes for open communication, information-sharing and continual learning
Lead employees to act as owners
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CTL Engineering
• Headquartered in Columbus, Ohio
• Started in 1927
• Columbus Testing Laboratories
• 245 employee owners
• 100% employee owned (83% ESOP)
• Engineering and consulting services
• Telecommunications
• Security & Video Surveillance
CTL EngineeringEstablishing CTL’s ESOP
• Eight years discussing with owner• Company performance inconsistent• 1990 made profit, but no cash• Choices:
- Take a loan to pay taxes- Create non-cash deduction
CTL EngineeringESOP Solves CTL Problems
• Viable solution to owner’s tax issues• Company stock contribution of 7% in 1991• Another 7% contribution in 1992• ESOP offered significant advantages• ESOP good for all parties
Owners86%
ESOP14%
CTL EngineeringESOP in Limbo
• Expected people to get on board• People didn’t buy into ESOP concept• Did little communication• ESOP unimportant to most • Owner was disappointed
CTL EngineeringOwner’s Options
ManagementBuyout
OutsiderPurchaser
Sell toESOP
CTL EngineeringOwner Options
• Management preferred ESOP purchase
• Owner unsure ESOP was “right”
• “Tire kickers” visited our facilities
• Owner looking for financial commitment
• ESOP shrinking as people left CTL
CTL EngineeringOwner Sells to ESOP
• ESOP became most viable option• Outside and insiders educate owner• Financial and business benefits• Building ownership culture
Mgmt17%
ESOP83%
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CTL Engineering Initiation of Fun Czars
Created to establish a higher moraleNon-executive personnelOne goal…build ESOP spirit and enthusiasmMain result of our efforts…turnover has
decreased and retention has increasedFormal budget submitted and reviewed annually
CTL Engineering Committee Challenges
Mature ESOP• New participants aren’t seeing the
benefit• Rebalancing should help
Multiple officesOver half of employees are in the field
CTL Engineering What’s Worked
Visiting every office every other yearNew hire trainingGuess the Stock ValueESOP representatives in every branchAll events are ESOP eventsESOP monthQuarterly ESOP Advisory
CTL Engineering ESOP Culture ≠ Overnight Success
• Not everyone buys in right away• Needs consistency and repetition• Provide ESOP information in all forms
CTL Engineering All Events=ESOP Events
CTL Engineering Promote Involvement
Contest for best T-shirt design
CTL Engineering What’s Worked - New
Quarterly ESOP Advisory• Submit for a chance to win $100 American Express Gift Card
CTL Engineering Fun Czars Results
Turnover decreasedBuilding ESOP environment/spirit“May I speak to the owner?”Receptionist: “You’re speaking to one.”Think like owners
• Weathered the 2008 economic downturn– Furloughs– Suspended 401k Match
• No layoffs
CTL Engineering – Financial Education
CTL Engineering Stock Value History 1995-2011
0
200
400
600
800
1000
1200
1400
1995 1997 1999 2001 2003 2005 2007 2009 2011
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-40
-20
0
20
40
60
80
100
120
140
160
180
Cumulative Stock Return 2005-2011
25%70%562
4.3%17.8%
15%85%6457.3%17.2%
25%110%804.5020.9%33.5%
19.2%129.2%
95924.4%39.9%
-1%128.2%948.70-14.1%6.1%
.3%128.5%
9529.35%24.92%
17.1%145.6%
111522.13%35.94%
Annual changeCumulativeStock ValueS&P 500DJIA
CTL StockS&P 500DJIA
12/ 10 12/ 1110.6%156.2%
123322.13%41.47%
3/ 05 12/ 05 12/ 06 12/ 07 12/ 08 12/ 09
Mission/Guidelines/Bylaws
Initially typically drafted by management or Board of Directors
Committee then revises as needed
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Typical Mission Statement
Support success of ESOP
Support success of Company
Encourage education and understanding of ESOP by employees
Encourage and facilitate development of an ownership culture at the Company
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Scope of Responsibility for ESOP Communications Committee
ESOP Communication? Wages & Benefits? Marketing Strategy for Company Products? Quality Control Issues? ESOP Newsletter ESOP Training? ESOP and Company Celebrations? Annual Participant Meeting? Company Financial Information? Participant Voting (if pass-thru voting applies)? Attend ESOP Conferences and local training?
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Structure of ESOP Committee
Number of members Eligibility for committee membership Term of membership Composition of committee Selection/Election Process Committee Mission/Guidelines/Bylaws Scope of Responsibility
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Number of Members
Odd number to avoid tie votes?• ≤ 4 people – probably too small• ≥ 12 people – probably too large
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Eligibility to Serve on Committee
All employees? Management only? Non-management only? Full-time employees only? ESOP Participants only? ESOP Participants who are at least partially vested only? Fully vested ESOP Participants only?
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Term of Office
1 Year? 2 Years? 3 Years? 1 Year with re-election possible but with majority of
Committee not eligible for re-election? 3 Years with only 1/3 of committee elected each year? Unlimited as long as person is willing to serve?
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Representation of Constituencies
Management vs. Non-management Old vs. New Employees Departments Locations
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Representationon Board of Directors
No representation of Committee on Board Committee Chair on Board automatically Management selects Board member Committee selects/elects Board member
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Committee Selection/Election
Who Conducts selection/election? Who Counts Votes? What are the voting hours? Who’s eligible to vote? 1 Person 1 Vote vs. 1 Share 1 Vote Who defines departments?
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Voting Methodology
Ballot E-mail Phone FAX All of the above Raising hands at a meeting
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Committee Budget
Direct Expenses• Material for events• Registration fees for conferences/seminars• Travel to conferences/seminars/meetings• Newsletter costs• Communication costs
Time spent by committee members
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Committee Meeting Issues
Company time vs. after-hours Paid vs. unpaid Frequency of meetings Length of meetings Priority vs. departmental work assignments
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Selection of Committee Chair
Elected position? Chosen by management? Highest level person on committee? Selected by committee members?
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Typical Bylaws
Contain decisions reached re all the issues we are discussing in this program!
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Typical Guidelines
Detailed policies and procedures for:• Committee elections• Committee officer selection and responsibilities• Committee meetings• Replacement for a departed committee member• Committee functions• Committee members attending ESOP Conferences and
Programs Specification of scope of responsibility
48TEA November 2012
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