ESOP Committees – How They Interact & Setting up a Communications Committee
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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
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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
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ESOP Committees – How They Interact & Setting up a Communications Committee
…… Issues to CONSIDERRolesMission / ScopeStructureMembership / RepresentationTermSelection / ElectionBudgetMeetingsBylaws
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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 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
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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
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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%
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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
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CTL EngineeringOwner’s Options
ManagementBuyout
OutsiderPurchaser
Sell toESOP
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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
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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
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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
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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
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CTL Engineering ESOP Culture ≠ Overnight Success
• Not everyone buys in right away• Needs consistency and repetition• Provide ESOP information in all forms
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CTL Engineering All Events=ESOP Events
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CTL Engineering Promote Involvement
Contest for best T-shirt design
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CTL Engineering What’s Worked - New
Quarterly ESOP Advisory• Submit for a chance to win $100 American Express Gift Card
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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
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CTL Engineering – Financial Education
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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
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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
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