The recent push to spread employee stock ownership by Pete Stavros, co-head of private equity for the Americas at KKR, seems to have received a lot a press lately. Apparently, Mr. Stavros “has spent the bulk of his career studying and promoting the benefits of awarding stock to factory workers and other hourly wage earners. He has implemented programs to make equity awards and provide financial-literacy training at the industrial companies the firm owns.” Here is an excerpt from the WSJ:
“This is not just about doing good through business,” said [the CEO of Harley Davidson], who consulted Mr. Stavros on development of the plan and invited him to give a presentation to Harley’s board. “It’s about: How do you make your business better?”
Messrs. Zeitz [the CEO] and Stavros acknowledged that heightened focus by big investors on environmental, social and governance issues has made it easier for companies to justify doing something that shareholders might once have criticized because it dilutes their stakes.
Seasoned compensation professionals like me (that sounds better than old geezers, doesn’t it?) will recall that prior to FAS 123R, some companies awarded stock options to nearly all employees. Under APB No. 25, companies recorded no accounting expense for options awarded with an exercise price at fair market value. After FAS 123R, most companies concluded that the accounting expense for so many option awards was prohibitively expensive – and that was the end options for all employees.
At least two other alternatives exist for spreading stock ownership among employees, Employee Stock Ownership Plans and Employee Stock Purchase Plans. I presume that most readers are familiar with Employee Stock Purchase Plans, generally qualified under code Section 423 (ESPP). Employee Stock Ownership Plans (ESOPs) are a form of qualified retirement plan, like a 401(k) Plan, but with significant company contributions used to purchase and allocate company stock among all plan participants.
-Mike Melbinger, CompensationStandards.com March 1, 2021
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