Example of SAR Plan

Issue #10: Despite being “employee owned", a material portion of your stock will likely be held by non-employees by year ten.

Why It’s Important

Your ESOP distribution policy likely leads to former employees having ESOP accounts. By year 10 those accounts can easily become as much as 20% of the ESOP shares allocated. In a growing company that’s both a source of capital and in many ways antithetical to the concept of employee ownership. This can be similar to a “have-have not” problem.

Framework to Respond

Options in the playbook include:

• Do nothing as undistributed/unsegregated accounts are a source of capital

• Modify distribution policies such that you guide the percentage ownership by non-employees to an acceptable level

• Explore ways to redeem nonemployee accounts

Issue #11: You will make a decision about how much to rely on “employee ownership” in branding your company to employees, prospective employees and your customer market.

Why It’s Important

Knowing what ownership means to your company provides the focus for these communications. More companies are using the “employee owned” externally to educate their community and finding loyalty in their customer base.

Framework to Respond

• Set expectations for your employees as to “ownership” and make it part of your language

• The ESOP is a recruiting and retention tool, so explaining to prospective employees how it differentiates you and give you an advantage