initial esop communications

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Initial ESOP Communications ESOP Association Two-Day Conference Las Vegas, Nevada 9:00 AM -- November 4, 2004 Loren Rodgers Ownership Associates

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Initial ESOP Communications. ESOP Association Two-Day Conference Las Vegas, Nevada 9:00 AM -- November 4, 2004. Loren Rodgers Ownership Associates. Agenda. ESOP Training Getting the Most from Required Communications Going Beyond the Nuts and Bolts Tips for Making it Work. -1- - PowerPoint PPT Presentation

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Page 1: Initial ESOP Communications

Initial ESOP Communications

ESOP Association Two-Day ConferenceLas Vegas, Nevada

9:00 AM -- November 4, 2004

Loren RodgersOwnership Associates

Page 2: Initial ESOP Communications

www.ownershipassociates.com

Agenda1.ESOP Training

2.Getting the Most from Required Communications

3.Going Beyond the Nuts and Bolts

4.Tips for Making it Work

Page 3: Initial ESOP Communications

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-1-

ESOPTraining

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Start with the Basics.

DESIGNING ESOP COMMUNICATIONS

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So, what is an ESOP?

Employee

Stock

Ownership

Plan

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ESOPs……are retirement plans,

and…they invest primarily in company stock.

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Cover the “hard issues”

DESIGNING ESOP COMMUNICATIONS

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The “Hard Facts”

• Participant legal rights

• Risks of ownership

• Benefit trade-offs

• Sole ownership / joint ownership

• Direct ownership / beneficial ownership

Page 9: Initial ESOP Communications

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ESOPs and Rights

Psychologically:Employee-Ownership means rights.

Legally:• Access to Plan Documents• Annual Account Statements• Voting on major corporate decisions

– Liquidation– Sale of substantially all assets– Recapitalization– etc.

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Describe the upside -- without making promises.

DESIGNING ESOP COMMUNICATIONS

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Research Highlights• ESOP companies, on average, outperform

non-ESOP companies by approximately 2.3% on a number of measures.

• ESOP companies file for bankruptcy less often than non-ESOP companies.

• On average, ESOP participants have approximately 2.5 times more retirement assets than non-ESOP participants, without a loss in

income.

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Share the “big picture” – and employees’ role.

DESIGNING ESOP COMMUNICATIONS

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Standard Employment Deal

8 hours pay

8 hours work

Page 14: Initial ESOP Communications

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8 hours pay

8 hours work

Ownership Rewards

Ideas and Effort

Employee-Ownership “New Deal”

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Ideas and Effort

DepartmentPerformance

IndividualPerformance

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Ownership Rewards

StockValueESOP

Page 17: Initial ESOP Communications

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DepartmentPerformance

IndividualPerformance

StockValueESOP

Employee’s Return on Effort

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Required every year, after the books have been closed.

Three main methods:• Asset• Income• Comparison

Slide 29

Stock Valuations

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Use images.

DESIGNING ESOP COMMUNICATIONS

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Total allocation = 850 shares

If the total allocation is 850 shares,Suppose eligible payroll is $2,500,000

Total payroll = $2,500,000

Eligible Payroll ESOP

Beth’s $25,000

and Beth earns $25,000

John’s $20,000

and John earns $20,000.

Beth’s 8.5 shares

Beth gets 8.5 shares

John’s 6.8 shares

and John gets 6.8 shares.

Stage 2: Allocation

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-2-

Getting the Most from Required

Communications

Page 22: Initial ESOP Communications

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Account statements and the SPD can help… or hurt.

DESIGNING ESOP COMMUNICATIONS

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1

3

2

Page 24: Initial ESOP Communications

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Account Statement: Part 1

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Account Statement: Part 2from the year beforecurrent year allocation from the companyInvestment gain or loss

distributions

additions from other people forfeiting unvested value

miscellaneous bookkeeping

Page 26: Initial ESOP Communications

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Account Statement: Part 2

Page 27: Initial ESOP Communications

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Account Statement: Part 2

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Account Statement: Part 3

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-3-

Going Beyond the

Nuts and Bolts

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ESOPs are not an “off-the-wall” idea.

DESIGNING ESOP COMMUNICATIONS

Page 31: Initial ESOP Communications

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Number of ESOP Companies in the US

0

2,000

4,000

6,000

8,000

10,000

12,000

1974 1981 1984 1987 1990 1996 2000

Growing Popularity

Page 32: Initial ESOP Communications

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ESOPs in the United States

201 or more

101 to 200

71 to 100

51 to 70

0 to 50

Number of ESOPsin Each State

Where are they? Map of the U.S.

Page 33: Initial ESOP Communications

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Where are they in New England?

Berlin City Car Center

Cianbro Corporation

Howell LaboratoriesJ & S Oil Co.

Sebago Technics

MO

MO

MOMO

MO

MO

MO

MO

Hypertherm

O’Connor GMC

AdmixCirtronix

DENS PartnersNormandeau Associates

Carris ReelsKing Arthur Flour

LITECONTROL

Page 34: Initial ESOP Communications

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Ownership means…

investment

employee involvement

a good benefit

equalitybogus

teamwork

incentive

what is it?

Page 35: Initial ESOP Communications

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The government actively supports ESOP development.

DESIGNING ESOP COMMUNICATIONS

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LONG, Russell Billiu, born: November 3, 1918; US Senate 1948 to 1986. Chairman, Committee on Finance. Died: May 9, 2003.

Russell Long

Page 37: Initial ESOP Communications

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Legislative Balance

Legislative Goals Business Concerns

• Increase competitiveness

• Share ownership broadly

• Protect retirement savings

• Tax benefits

• Stable ownership

structure

• Orderly Process

Page 38: Initial ESOP Communications

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Page 39: Initial ESOP Communications

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Oversight of ESOPs

• Internal Revenue Serviceensures that tax benefits only go to companies who run the ESOP equitably and fairly according to the rules.

• The Department of Laborensures that employees receive a fair benefit from the ESOP.

Page 40: Initial ESOP Communications

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Describe the ESOP transaction... and the motivations for the ESOP.

DESIGNING ESOP COMMUNICATIONS

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Outside Purchaser

OurC

o

Sto

ck

Founding Shareholder

s

Smith and Others

The Transaction: Option A

What happens to

OurCo, Inc.?

OurCo Employees?

Our “OurCo Culture”?

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The ESOP:A Trust for

OurCo Employees

OurCo StockOurCo, Inc.

(Cash and Loans)

OurCo Stock

Founding Shareholder

s

Smithand Others

The Transaction: Option B

Stays intact!

Page 43: Initial ESOP Communications

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People want to know: why are we doing this?

DESIGNING ESOP COMMUNICATIONS

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Investment

Return

Incentive OnlyLow to

MediumLow

(-1 to 2%)

Culture + Incentive HighHigh(5 to 13%)

“Return on Ownership”

Page 45: Initial ESOP Communications

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The Five Challenges

1.The Policy Challenge

2.The Interpersonal Challenge

3.The Literacy Challenge

4.The Information Challenge

5.The Entrepreneurship Challenge

Page 46: Initial ESOP Communications

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Build systems to ensure perceptions of fairness and trust.

DESIGNING ESOP COMMUNICATIONS

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-4-

Tips for MakingIt Work

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1. Support Middle Managers

2. Repeat / Use Multiple Channels

3. Use Structured Peer-to-Peer Learning

4. Warn About “First Year Dip”

5. Use Games

6. Be Careful with Projected Account Value

7. Interactive Learning

Page 49: Initial ESOP Communications

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Tips1. Support Middle Managers

2. Repeat / Use Multiple Channels

3. Use Structured Peer-to-Peer Learning

4. Warn About “First Year Dip”

5. Use Games

6. Be Careful with Projected Account Value

7. Interactive Learning

Page 50: Initial ESOP Communications

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Common Feelings About Ownership

Wait and See

What is it?

Fear

Enthusiasm

Cynicism

Page 51: Initial ESOP Communications

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Common Feelings About Ownership

Write down one letter:

a. Fear

b. Cynicism

c. What is it?

d. Wait and See

e. Enthusiasm

Page 52: Initial ESOP Communications

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1. Physical Working Conditions

2. Election of Employees’ Committee

3. Speed of Production

4. Job Assignments

5. Safety Rules and Practices

6. Quality Standards and Measurement

7. Hiring

8. Promotions, Performance Evaluation

9. Equipment Layout

10. Asset Purchases

11. Employee Compensation and Benefits

12. Firing

13. Marketing and Advertising Strategies

14. Raising Capital, Relationships with Banks and Investment Groups

15. Product, Technology, and Investment Strategy

16. Lay-off Policy, Employment Levels

17. Management Compensation

18. Distribution of Profits (dividends, reinvestment, debt reduction)

19. Selection and Oversight of Senior Management

20. Constitutionalism: Setting and Moving Decision-Making Boundaries

21. Selection of Board of Directors

22. Fate of the Company: merger, sale, major location change

Standard List of Corporate Decisions

Page 53: Initial ESOP Communications

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22. Fate of the Company: merger, sale,major location change

21. Selection of Board of Directors

20. Constitutionalism: Setting & MovingDecision-Making Boundaries

19. Corporate Strategy

18. Distribution of Profits (dividends,reinvestment, debt reduction, etc.)

17. Selection and Compensation ofSenior Management

16. Lay-off Policy, Employment Levels

15. Product, Technology, andInvestment Strategy

14. Raising Capital, Relationships withBanks and Investment Groups

13. Marketing & Advertising Strategy

12. Firing

11. Employee Compensation & Benefits

10. Asset Purchases

9. Equipment Layout

8. Promotions, Job Evaluations

7. Hiring

6. Quality Standards and Measurement

5. Safety Rules and Practices

4. Job Assignments

3. Speed of Production

2. Election of Employees’ Committee

1. Physical Working Conditions

CORPORATEPOLICY

Influence Chart

Types of Influence

MANAGERIALOPERATIONS

Page 54: Initial ESOP Communications

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Board of Directors

22. Fate of the Company: merger, sale,major location change

21. Selection of Board of Directors20. Constitutionalism: Setting & Moving

Decision-Making Boundaries19. Selection and Oversight of Senior

Management18. Distribution of Profits (dividends,

reinvestment, debt reduction, etc.)17. Management Compensation16. Lay-off Policy, Employment Levels15. Product, Technology, and

Investment Strategy14. Raising Capital, Relationships with

Banks and Investment Groups13. Marketing & Advertising Strategy12. Firing11. Employee Compensation & Benefits10. Asset Purchases9. Equipment Layout8. Promotions, Performance

Evaluation7. Hiring6. Quality Standards and Measurement5. Safety Rules and Practices4. Job Assignments3. Speed of Production2. Election of Employees’ Committee1. Physical Working Conditions

OVERALL POLICYAND STRATEGY

Influence Allocation Chart

Types of Influence

CORPORATEManagerialOperations

DEPARTMENTLocal Policy,Planning andCoordination

Management

Shareholder Voting

DecisionMaking

Represent-ation Voting

2001 Ownership Associates, Inc. Cambridge, MA.

Page 55: Initial ESOP Communications

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Board of Directors

22. Fate of the Company: merger, sale,major location change

21. Selection of Board of Directors20. Constitutionalism: Setting & Moving

Decision-Making Boundaries19. Selection and Oversight of Senior

Management18. Distribution of Profits (dividends,

reinvestment, debt reduction, etc.)17. Management Compensation16. Lay-off Policy, Employment Levels15. Product, Technology, and

Investment Strategy14. Raising Capital, Relationships with

Banks and Investment Groups13. Marketing & Advertising Strategy12. Firing11. Employee Compensation & Benefits10. Asset Purchases9. Equipment Layout8. Promotions, Performance

Evaluation7. Hiring6. Quality Standards and Measurement5. Safety Rules and Practices4. Job Assignments3. Speed of Production2. Election of Employees’ Committee1. Physical Working Conditions

OVERALL POLICYAND STRATEGY

DirectInfluence

SharedInfluence

RepresentativeInfluence

ConsultativeInfluence

Influence Allocation Chart

Types of Influence

CORPORATEManagerialOperations

DEPARTMENTLocal Policy,Planning andCoordination

Em ployee Partic ipationCommittees/Task Forces

W ork Team s

Management

Shareholder Voting

2001 Ownership Associates, Inc. Cambridge, MA.

Page 56: Initial ESOP Communications

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The Present at CCC

1 Fate of the Company: merger, sale, etc.

2 Selection of Board of Directors

3 Approve Minutes

4 Distribution of Profits

5 Holding Senior Management Accountable

6 Senior Management Compensation

7 Capital Improvement (Investment Strategy)

8 Manufacturing Technology

9 Selection of Senior Management

10 Acquisitions / Start Ups

11 Product Development

12 Raising Capital, Rel.'s with Banks, Investors

13 Marketing & Advertising Strategy

14 Employee Compensation

15 Management (Exempt) Hiring

16 Constitutionalism / Governance

17 Quality of Worklife Issues

18 Communications / Training

19 Allocation of Employee Benefits (Mgt. Budget)

20 Product Pricing

21 Lay-off Policy, Employment Levels

22 Firing

23 Equipment Purchases 24 Wage Changes, Raises

25 Setting Production Standards 26 Equipment Layout

27 Setting Safety Rules and Practices

28 Setting Quality Standards and Measurement

29 Performance Evaluation

30 Promotions 31 Disciplinary Action

32 Hourly (Non-Exempt) Hiring

33 Enforcing Safety Rules and Practices

34 Enforcing Quality Standards and Measurement

35 Determining Work Assignments

36 Election of Steering Committee Representatives

37 Participate in Taskforces and Committees

38 Local Work Environment

Site Management

Employees

Supervisors

Shareholders*

Steering Committee

Senior Management

Board of Directors

Dept. Managers

President / Vice-President

ISS

UE

S (

Y-A

XIS

)

PRIMARY AUTHORITY (Z-AXIS)

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