| The global business community is recognizing | | | | own anywhere from a few percent to 100 |
| the benefits of employee ownership, from tax | | | | percent of the company.In recent years, there |
| savings to improved work performance, as more | | | | has been an explosive parallel growth in |
| major firms worldwide offer stock as | | | | employee ownership through 401(k) plans. The |
| compensation.This material is drawn | | | | major factor in this growth has been an |
| substantially and directly from the National | | | | increasing tendency for companies to match |
| Center for Employee Ownership, a nonprofit | | | | employee contributions to the plans with |
| membership and information organization in | | | | company stock. Employees also are putting |
| Oakland, California.Employees have become | | | | more of their own investments in company |
| major players in capital ownership worldwide | | | | stock. Recent estimates indicate more than |
| through employee stock ownership plans | | | | half of all 401(k) matches are made in |
| (ESOPs), according to a new analysis. Touted | | | | company stock. It is estimated that there are |
| as the "the ultimate instrument of corporate | | | | at least 2 million participants in these |
| finance," a well-designed ESOP successfully | | | | plans, about 2,000 of which have a majority |
| accomplishes major corporate goals to provide | | | | of their assets in company stock. Employees |
| owners with a superb return on capital | | | | own about $250 billion in company stock |
| investment, unequalled tax advantages and | | | | through 401(k) plans.Employees Prefer |
| rewards long term loyal employees far better | | | | StockPeople want stock as pay. More than 16 |
| than the common retirement plans, such as | | | | million employees now get stock as part of |
| 401(k) and profit sharing plans. Rewards, | | | | their pay. Why does this number continue to |
| such as stock appreciation, are quantifiable, | | | | increase? There are numerous reasons. |
| but there also is what can be called the | | | | |
| "adventure reward."According to the Arizona | | | | Three of the more salient are:Tax incentives |
| ESOP Group LLC , employees who share in | | | | for owners and their companies are unequalled |
| equity appreciation begin to think and act | | | | by any other financial strategy.There is a |
| like owners, and owners always work harder | | | | growing corporate desire to create an |
| than employees do. To illustrate, Home | | | | "ownership culture" - owners always work |
| Depot's stock ownership program created more | | | | harder than employees.Employees are asking |
| than 1,000 millionaires in 1998, according to | | | | for it.In the past 25 years, the stock market |
| Bernard Marcus, cofounder of Home Depot. | | | | is up more than 11 times, while the real |
| Statistics reveal that 17 to 18 million U.S. | | | | median wage is up a few percentage points. |
| employees now own from $650 million to $1 | | | | Business owners and HR professionals should |
| trillion in stock through employee stock | | | | take note: Employee equity participation will |
| ownership plans, 401(k) plans and broad-based | | | | be a major theme in the 21st century. The |
| stock options, and the appreciation potential | | | | federal govern-ment recognizes this and |
| is dramatic.Global GrowthThe worldwide | | | | encourages businesses to become ESOP sponsors |
| business community is recognizing the beauty | | | | by creating working capital by enjoying tax |
| of sharing equity with employees. As | | | | deductions for contributions of stock to |
| impressive as the growth of employee | | | | their ESOP. Using an ESOP to borrow affords |
| ownership in the United States has been, | | | | the unique advantage of tax deducting |
| there have been even more striking | | | | principal payments as well as |
| developments abroad. The most important | | | | interest.Finally, there has been rapid growth |
| are:Russia: Most large enterprises in Russia | | | | in companies making stock options available |
| have been sold to their work forces, while | | | | to most or all employees. Most technology |
| thousands of other businesses have become | | | | companies that use stock options now make |
| employee owned in other formerly socialist | | | | them available to most or all employees, |
| countries. Enterprises with more than 200 | | | | according to recent surveys from Share Data, |
| employees have been sold primarily to their | | | | a stock options plan administration firm. |
| work forces. The average ownership by | | | | This is another method of building employees |
| nonmanagement employees is about 55 to 65 | | | | into equity participation, but without the |
| percent. Employees hold their stock as | | | | same preferential tax benefits enjoyed by |
| individuals and, so far, relatively few have | | | | both ESOP sponsors and employee |
| decided to sell. In the future, many of these | | | | participants.At the same time, more and more |
| enterprises are likely to be sold in whole or | | | | major companies, such as Pepsico, Starbucks |
| in part to investors or other companies | | | | and Whirlpool, are giving options to most of |
| unless legal changes are made.China: Millions | | | | their employees. While firm estimates are not |
| of employees are becoming owners in their | | | | possible, it appears that at least 5 million |
| companies, and both the central and local | | | | employees participate in these plans. This is |
| governments are seriously exploring the idea | | | | a potential value in the hundreds of billions |
| of large scale enterprise reform through | | | | of dollars.The trend toward employee |
| employee ownership. Several local governments | | | | ownership is being fueled by three factors. |
| have sold off most of their enterprises to | | | | First, where employee ownership has been |
| employees, and the central government now is | | | | around long enough to study, especially in |
| seriously investigating implementing employee | | | | the United States, data clearly and |
| ownership on a wide scale.Eastern Europe and | | | | continually shows a strong positive |
| Former Soviet Republics: Most of these | | | | relationship with corporate performance when |
| countries have provisions to encourage at | | | | these plans are tied to a participative |
| least minority employee ownership in | | | | management philosophy. More and more |
| privatized enterprises. In some countries, | | | | companies are concluding that sharing |
| particularly Slovenia, Hungary and Poland, | | | | ownership and encouraging employee input |
| hundreds of enterprises have become majority | | | | makes good economic "dollars and sense." |
| employee owned.England: Legislation similar | | | | Second, the privatization of state owned |
| to U.S. ESOP law has been in place since the | | | | enterprises is more politically palatable if |
| late 1980s. Recent changes have made it more | | | | employees are included as owners. Finally, to |
| attractive and several hundred companies now | | | | encourage businesses to sponsor an ESOP, the |
| have broad ownership. A few dozen large | | | | federal government offers tax savings and |
| companies now are majority employee | | | | cash advantages too rich to overlook.American |
| owned.Canada: Most Canadian provinces have | | | | Compensation Association Journal, |
| legislation providing substantial tax credits | | | | |
| (up to 40 percent) for investment in employer | | | | February, 2005For 25 years Frank Amato has |
| stock. Several hundred companies have taken | | | | been designing ESOPs and carving out key |
| advantage of this process.Jamaica: A 1994 law | | | | employee plans. He is Managing Member of the |
| in Jamaica provides strong incentives for | | | | Arizona ESOP Group, LLC and can be reached at |
| companies to share ownership with | | | | (480)222-0199 and (480)227-3064.Frank A. |
| employees.Japan: Ninety percent of Japan's | | | | Amato, President |
| publicly traded firms provide mechanisms for | | | | |
| employees to buy company stock. Participation | | | | Arizona ESOP Group LLC. |
| in these plans extends to most employees, and | | | | |
| the average per-employee holding is about | | | | An Employee Stock Option Plan Consulting |
| $16,000. However, these plans generally | | | | FirmGraduate 1970 from Michigan State |
| result in employees owning only about two to | | | | University, B.S. in Economics.From 1970 |
| three percent of their firms.ESOP | | | | through 1976, Captain U. S. Air Force, |
| BeginningsThe trend toward employee ownership | | | | fighter pilot during the Vietnam era.Member, |
| started in the United States in the 1970s, | | | | National Center for Employee Ownership |
| when ESOPs were given specific tax benefits | | | | (NCEO).He has spoken before the Arizona State |
| and regulatory guidelines. Today, more than | | | | Legislature Senate Finance Committee and has |
| 11,000 of these and similar plans cover | | | | written numerous articles for various local |
| almost 9 million employees who own about $213 | | | | and national business publications.Visit |
| billion in assets. ESOPs can be found in | | | | message on ESOPs at: |
| major firms like United Airlines and Home | | | | |
| Depot. Thousands of smaller, closely held | | | | message from Frank A. |
| companies also sponsor ESOPs. Employees can | | | | |