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As an employee, what does employee stock options mean to you? Does your current company offer anything, including but not limited to Restricted stock, ESOP, Deferred Compensation Plan with company stock, Phantom Stock, Founder Stock, etc?Are you white collar or blue collar? Has it impacted your longevity in the company? Any opinions/comments/complaints about what is offered by your employer?

 

 

We are considering doing an ESOP and getting employee feedback. It not done a lot, has a lot of pros but some cons. We want to make sure that it would be appreciated and wanted by employees and we have a wide range of employees from hourly up through executive.

 

 

Would this have a positive, negative or neutral impact on your feelings towards the company and general morale?

 

Thanks!

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I've received restricted stock and also had the opportunity to participate in an ESOP. These are motivating assuming the company is doing well or has the potential to do well.

 

I think a lot of employees don't understand the value of ESOP plans or how to maximise this benefit. Some sort of training/counseling would probably be helpful.

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While I'm sure they have their place, most of the old timers in my industry, heavy industrial, could share horror stories about how the beancounters and suits sold them a bill of goods and took their golden parachutes and left labor holding the bag on bankrupt companies and shuttered facilities. My prime working years were during the era when the linked article below was written:

 

New Height For Esop - tribunedigital-chicagotribune

 

Heh, right around that time, I remember laughing when, after getting laid off due to closing of the particular shop location in a larger company, I got my profit sharing check for my 7 1/2 years of employment. Thirteen bucks. I lulz.

 

Given the nature of business today and how people move around and generally don't care about anything other than themselves, save for a few, comparatively, suit situations where stock ownership is a part of their employment package, I wouldn't waste the time with the deal for common labor. In general, we're skeptical, especially if it's offered in lieu of hard money compensation.

 

That said, a long-time friend did really well with a ESOP program at his job. Caveat? Largest public utility in California and he worked there 33 years. That's where it can work.

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thefooloftheyear

What Carhill said....

 

Its not the "old days" anymore...Too many companies have given pie in the sky promises and used it to build cash reserves, then left the lower level employees holding the bag...

 

Most people aren't sophisticated enough to know how to decipher the tricky accounting that's shown in the annual/ semi-annual reports and just use it to line the parakeets cage or trash it without getting past the first page..

 

But if they are willing to buy it, sell it...*shrug*

 

TFY

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When asked, what I've advised business colleagues to do is employer contributions to 401K plans that the employees control within the framework of the plan. The basket of options is more diversified, the employee feels they're more in control, and it's easier to grab that basket when they inevitably leave or are fired or laid off. If I wanted to own company stock directly, I'd buy it in my 401K/SEP/KEOGH/IRA or through a DRIP, presuming the company is publicly traded.

 

Would I have liked to be one of those employees, founder employees, the two Steves offered stock in lieu of compensation back in the 70's for the little startup that would become Apple Computer? Well, sure. Heck, I made a ton off the them just by buying their stock at the right time in history. For normal folks who bang away at a job every day, those deals are pie in the sky. In the past, when corporations and government controlled information, the masses were easy to sway, sell and deceive. It's not so easy anymore. People network and it's a small world.

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Thank you all for your feedback! So with ESOP, there is no "buying" from the employee. This will be stock given to them. But yes, if the company goes south that is always the risk. We are a fast growing, very successful/popular brand right now that is still privately held but exploding. So there is a lot of interest in getting some piece of the pie before we ever decide to go public or sell. (Wanted to add that caveat of information).

 

And I agree, United is a prime example of pension/stock programs that due to bankruptcy and realigning people who were going to retire well into the six figures ended up with a small portion of it.

 

We do an employee match 401k but struggle getting the non-highly compensated employees (for those that don't know what that means, anyone that makes (including base and bonuses) less than 105K annual is a non-highly) to contribute. We are not safe harbor so fail testing year over year which results in a large pool of employees getting back monies from the 401K and thusly taxed.

 

I have pitched to increase the contribution amount but have not been successful. And it is hard to get someone who makes 10.00 an hour to want to put aside any money, even pre-taxed, into their 401K. So the ESOP would be "free" like stock (it isn't actually stock), and would be able to cash out at the time of departure, retirement, or the company sells.

 

I know that there were many who made a good bit in the hey day of Applebee's, Friday's, etc. who were there when they went public (for example).

 

But it is definitely a gamble and my concern, which some of you reiterated, is outside of our mid management and higher, the appeal of the ESOP is going to fall short.

 

Big picture we are doing a thorough analysis of our total rewards for our employees, how we compare to competition, etc. so we can be a leading employer of choice.

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I am with the others in that I don't count on stock ownership plans. I take anything they pay out as unexpected gravy so to speak.

 

I have also been on the employer side of an ESOP. They can be great tax-wise but there has been so much abuse of that the IRS kept changing the rules and it became a lot to manage.

 

There are also some IRA type plans. It's been a while since I've worked with this so I forgot the name but basically the company can cut employees a check as ask them to put it in a retirement account. If they do it's tax-free. If they don't they have to pay a decent amount in taxes. It was very simple to get up too. Just a couple of forms. I want to say it was something like a SEP IRA. It might be something else to look into if you haven't already done so.

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I am with the others in that I don't count on stock ownership plans. I take anything they pay out as unexpected gravy so to speak.

 

I have also been on the employer side of an ESOP. They can be great tax-wise but there has been so much abuse of that the IRS kept changing the rules and it became a lot to manage.

 

There are also some IRA type plans. It's been a while since I've worked with this so I forgot the name but basically the company can cut employees a check as ask them to put it in a retirement account. If they do it's tax-free. If they don't they have to pay a decent amount in taxes. It was very simple to get up too. Just a couple of forms. I want to say it was something like a SEP IRA. It might be something else to look into if you haven't already done so.

 

Thanks, no owners aren't interested in something like that. They would rather increase 401K contribution.

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I have crossed that threshold to being a "highly compensated employee", and didn't even know the term existed, IRS-wise.

 

Any additional useful information to research and know about it? Does it affect tax rates, tax preparation, or anything else?

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I have crossed that threshold to being a "highly compensated employee", and didn't even know the term existed, IRS-wise.

 

Any additional useful information to research and know about it? Does it affect tax rates, tax preparation, or anything else?

 

No this has nothing to do with personal taxes, tax rates, etc. This is only a term used with 401Ks, Deferred Comp plans, etc compliance with them. Please do not take this as anything to do with individuals and your taxes.

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Feeling neutral about this. It depends on the company and how lucrative it is. I would base my decision on whether or not it is likely that I would highly gain or highly lose stock.

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If it were an up and coming Co., I would be interested, otherwise, there are better places I'd like to invest my money right now.

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Clarence_Boddicker

All stocks have the potential to only be worth the paper they're printed on. Anyone remember ENRON?

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If it were an up and coming Co., I would be interested, otherwise, there are better places I'd like to invest my money right now.

 

Again, not something the employee is needing to put their own money in. They are given it as a benefit/gift that they can cash out when they leave or other qualifying reasons.

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Again, not something the employee is needing to put their own money in. They are given it as a benefit/gift that they can cash out when they leave or other qualifying reasons.

 

I guess what I meant is that I'd rather get paid that benefit monthly as a wage or bonus that I can invest wherever I choose.

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I guess what I meant is that I'd rather get paid that benefit monthly as a wage or bonus that I can invest wherever I choose.

 

Okay, got it. Thanks.

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lucy_in_disguise

Ive never had stock options and dont have a good understanding of the specific type of compensation youre referring to (always worked for private/ mutual fund companies) but the deferred compensation I have gotten, did factor into my analysis for deciding when to leave, though it was not the most important factor. I left my first employer the same month that my 401k became fully vested.

 

Personally, i think aligning results and incentives to the greatest extent possible is a good management strategy. If I was working for a company that has potential to go public, stock options would be very important to me, just as potential for high bonuses is important to me now in my current position, where the hours can be brutal. If my work contributes to the company's rapid growth I expect my compensation to reflect that. When compensation is not aligned with results, as an employee, it is a struggle to stay engaged. People engage when they have more at stake.

 

The challange is to structure incentives appropriately so that the actions being rewarded are in line with the company strayegy. At the higher levels, it may be difficult to provide incentives that promote long-term growth, vs. risky behaivior that happened to result in quick gains.

 

For lower-level employees i think it would also be important to clearly communicate the options so the inherent structure and risk of the plan is understood. For example if the stock options are based on the average/ lowest stock price over a given period of time (as i have seen in some plans) this should be clearly communicated to set expectations.

Edited by lucy_in_disguise
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I won't even look at a company that isn't offering any up front equity position. It shows the company is willing to put some skin in the game and values their employees. I bought my first house from my stock options in the late 90's.

 

Employee stock purchase plans really aren't that exciting unless all the fundamentals of the company including management are good and the stock price is rising. If not there really is no incentive to buy a dog stock at a discount if you never have the hope of selling it at a profit.

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