effective methods for communicating financial information the esop association 17 th annual...
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Effective Methodsfor CommunicatingFinancial Information
The ESOP Association
17th Annual Multi-State ESOP Conference
September 20, 2012
Alex Moss | Praxis Consulting Group
Jim Stefano | Synergy Global Solutions
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The Big Picture:Alignment Drives Performance
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Strategy
LeadershipCulture
HighPerformance
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Agenda for Today
Part 1: Why Open the Books? What company financial information do / should
you share with employee-owners? Why?
Part 2: How Can You Do It Effectively? Case study Sample Exercises
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What are Your Burning Issues?
?
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Part 1: Why Share Financials?
Legal requirements Research: employee ownership and
company performance Your company goals
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Individual Owners
ESOP Governance…and Opportunity
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ESOP Trustees
select
Leadership Team
Board of Directors
appoint and oversee
elect
hire and oversee
Shareholders
Employees
CEO / President
hire and oversee
ESOPParticipants
when meeteligibility
requirements
arerepresented
by
ESOP Committee:
PromoteOwnership
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Praxis’ Employee OwnershipPerformance CycleTM
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YourActions
CompanyPerformance
YourRewards
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We Know It Works: Sample Research Findings
Dramatically lower job loss during Great Recession: ~4:1
Improved worker productivity Increased sales growth rate Reduced employee turnover Substantial individual account balances Better retirement benefits: ESOP + other
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It Takes More Than Just Stock
Ownership Participation Improved Performance
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Discussion Question 1:Link to Your Strategic Goals
What are your strategic business objectives? What impact do you expect ownership to
have in improving your company? How do you want employee owners to act,
based on their increasing business knowledge?
What information do you need employee owners to understand? Why?
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Discussion Question 2:Current Status
How well do your employee owners understand the business and the financials?
What impact has this had on your business so far?
What works best today: think about… A specific company leader who “did it right” A specific employee-owner who demonstrated
that they “get it” Impact of employee initiatives on performance –
operating metrics, profitability, stock value
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Discussion Question 3:Future Vision
Imagine that it’s Fall 2015, and you are back at this conference sharing your achievements over the past couple years
What have you accomplished? Leadership initiatives Employee actions
The Gap: what do you need to do more of in your company to achieve this vision?
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Case Study: Synergy Global Solutions
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Synergy Global Solutions Overview
Corporate Headquartered in Victor NY. Sales Offices are in Buffalo, Rochester, Syracuse and
Albany regions Operations Center located in Buffalo, NY 130 + Employees 100% Employee owned (ESOP) Synergy Global Solutions has been providing Managed
Information Services for over 41 years. Synergy began as an Online Service Bureau providing a
host of application services in 1971. Our 2012 Annual Sales were $56 million. Our managed service business has grown to include
providing network monitoring and help desk services. Premier provider of IT Services to a wide range of
customers.
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Sample ESOP Finance Subcommittee Meeting
Note: during the session, we showed actual data from a recent Synergy meeting. This data is company confidential and is not included here.
Please contact Jim Stefano with any follow up questions on this element of the presentation.
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Questions: Today
What are the key themes that you share? Why do you choose to share this info (vs.
less detail, more detail, or different info)? How much of this info is shared with the
workforce as a whole? How do you think about & manage confidentiality?
What do your people understand most easily, where have they struggled (if at all)?
What training and support do you provide? How do you rotate new members onto the
committee?
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Questions: Past & Future
How has it evolved? If we attended a subcommittee meeting 5 years
ago, what would have been different? What changes did you make or see along the
way? What’s your future vision?
What will be the same / different 5 years from now? Why?
What challenges do you anticipate along the way, among shop-floor employees, managers, or customers?
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Appendix: How?What are the Pieces?
Context Setup
Initial planning Initial education: building a knowledge foundation
Operational implementation “Games” and other ongoing tools Process improvement initiatives
Evaluation and continuous improvement Future adjustments
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Context: It’s a Whole Process
Foundation: Leadership vision for how ownership should contribute to achieving strategic business objectives
Making it work: 4 categories of activities Training, initial and ongoing – teach the rules Communication – show the score Incentives – share the win Participation mechanisms – let ‘em play
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Initial Education:Sample Goals
To engage employees in learning about our business To build awareness of
The connection between your actions, the outcomes for our company, and your rewards
Business and financial terms, so that you can be effective consumers of financial information
Pay for performance, and the stock component of this in particular How the ESOP works, especially in relation to other incentives and
stock plans Balance between social responsibility and business objectives
To create readiness and knowledge necessary for future implementation
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Common Approaches
Focus on financial statements Start w/ dollar bill, carve up Profit & Loss, Balance Sheet, Cash Flow Case studies of where the numbers come from
and how the statements relate to each other Examples
Companies Commercial product example: the Accounting
Game / Lemonade Stand
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Praxis Template Outline
Initially: 3 sessions, 2½ hours each, 1x / month Session 1: Our Business, and How We Make
Money Session 2: How You Benefit through Profit
Sharing, Ownership, Retirement Plans, Other Incentives
Session 3: Factors That Drive Our Stock Value, and What You Can Do To Affect It
Future: additional sessions and continuing follow-up at departmental and corporate levels
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Agenda for Session 1
Income & expenses: the personal view Our business: the flow Our Profit & Loss statement (P&L): tracking
whether and how we make money “What if?” scenarios: the impact of changes
on our profits and stock value
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Exercise 1:Personal Income & Expenses
Income Expenses
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Exercise 1:Personal Income & Expenses
Two rounds Round 1: Personal, your home budget Round 2: Our Company
Questions Where does the money come from? Where does it go? If there’s coming in than going out: what can you
do with it, and how/when will you get it back? If not: what can you do about it? Who decides, and why? How does this relate to “value” and “wealth”?
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Exercise 2:The Flow of the Business
Your basic business process: what are the steps?
The exercise List functions & attach employee names Compare notes, pick 1 company [Make photos, big enough to handle: ~ 11x17] Put them in order
Relate to the P&L
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Other Exercises in Session 1
Product P&L: big enough to count, small enough to understand
Whole company P&L: sum of the parts “What if” scenarios: effect of operating
improvements on the bottom line, hook to ongoing “games”
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Agenda for Session 2
ESOP & Benefit Sharing Overview: create it, share it
How: Profit Sharing, Ownership, Retirement Plans, and Other Incentives
Rules: how they work Valuation: what all these plans could be
worth to you
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Agenda for Session 3
Our business strategy Our value proposition: why people buy products /
services from us Our Strategic Plan: where we are headed
Our stock value How the market / appraiser values our stock How you affect the value
Where to from here What we want you to do: operating challenges &
opportunities What other information you will receive: future
education & communications
Wrap up & graduation
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Other Sample Exercises
Constructing the Balance Sheet Developing specific performance improvement
targets Linking performance targets to the financial
statements to individual rewards Reinvesting profits: Board of Directors
exercise Profits, book value and market value Affect of investments, acquisitions, other
growth strategies – long term risk & reward Future value illustrations – for ESOP, Profit
Sharing and/or other contingent benefits
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Keeping the Process Alive
Core education/training program Targeted topics for leadership and/or “local” issues More big picture – our business strategy, and why More details – unit performance & improvement goals Repeat for new employees Adjust for new business / economic realities
Regular communication of performance issues and results
Participation structures so employees can use new information and knowledge to improve performance
Integration with other short and mid-term incentives Follow up: “Getting Your Company Ready for an
ESOP: the Ownership Culture Perspective” www.praxisCG.com/publications_esop_get_ready.htm
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Effective implementation requires:
Accountability: whose job is it to oversee / insure success?
Development: who will design it? Trainers: who will teach it? How will they
learn? Reinforcement: link to ongoing distribution
of key financial data Repetition: how often? Revision / continuous improvement:
incorporating new learning and keeping it fresh over time
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Praxis’ Principles for EffectiveBusiness Literacy Development
Simple Concrete Interactive Enjoyable Strategically integrated Developmental Just-in-time
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Discussion / Q&A
Any unanswered questions? What makes this hard? Other best practices in your companies?
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Contact Info
Jim Stefano
President
Synergy Global Solutions
Victor, NY
585.758.7250
www.synergygs.com
Alex Moss
Principal
Praxis Consulting Group
Philadelphia, PA
215.753.0303
www.praxiscg.com
September 20, 2012Multi State ESOP Conference | Communicating Financial Information