Transcript ESOP Committees - Dickinson Wright

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 PLLC
Tom Oettinger, The Onyx Group
Ali Jamshidi, CTL Engineering
Jay Simecek, The Ohio Employee Ownership Center
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ESOP Committees – How They Interact & Setting up a
Communications Committee
Agenda:
Introductions
Overview of committees in an ESOP
 Legal requirements
The Onyx Experience
The CTL Engineering Experience
Issues When Creating a Communications Committee
Q & A
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ESOP Committees – How They Interact & Setting up a
Communications Committee
…… Issues to CONSIDER
Roles
Mission / Scope
Structure
Membership / Representation
Term
Selection / Election
Budget
Meetings
Bylaws
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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 communicators
ESOP 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 Engineering
Establishing 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 Engineering
ESOP 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
ESOP
14%
Owners
86%
CTL Engineering
ESOP 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 Engineering
Owner’s Options
Outsider
Purchaser
Management
Buyout
Sell to
ESOP
CTL Engineering
Owner 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 Engineering
Owner Sells to ESOP
• ESOP became most viable option
• Outside and insiders educate owner
• Financial and business benefits
• Building ownership culture
Mgmt
17%
ESOP
83%
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CTL Engineering
Initiation of Fun Czars
Created to establish a higher morale
Non-executive personnel
One goal…build ESOP spirit and enthusiasm
Main result of our efforts…turnover has decreased and
retention has increased
Formal budget submitted and reviewed annually
CTL Engineering
Committee Challenges
Mature ESOP
• New participants aren’t seeing the benefit
• Rebalancing should help
Multiple offices
Over half of employees are in the field
CTL Engineering
What’s Worked
Visiting every office every other year
New hire training
Guess the Stock Value
ESOP representatives in every branch
All events are ESOP events
ESOP month
Quarterly 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 decreased
Building 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
1400
1200
1000
800
600
400
200
0
1995
1997
1999
2001
2003
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2007
31
2009
2011
Cumulative Stock Return 2005-2011
180
160
140
CTL Stock
S&P 500
DJIA
120
100
80
60
40
20
0
-20
-40
Annual change
Cumulative
Stock Value
S&P 500
DJIA
3/05
25%
70%
562
4.3%
17.8%
12/05
15%
85%
645
7.3%
17.2%
12/06
25%
110%
804.50
20.9%
33.5%
12/07
19.2%
129.2%
959
24.4%
39.9%
12/08
-1%
128.2%
948.70
-14.1%
6.1%
12/09
.3%
128.5%
952
9.35%
24.92%
12/10
17.1%
145.6%
1115
22.13%
35.94%
12/11
10.6%
156.2%
1233
22.13%
41.47%
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
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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
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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
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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
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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

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Management vs. Non-management
Old vs. New Employees
Departments
Locations
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Representation
on Board of Directors
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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
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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
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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
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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
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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
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