Merrill Lynch’s James Wallace Notes Trend in Return of ESOPs

Kim Wade

Friday, October 14th, 2016

If you are a publicly traded company or you work for one, you may be hearing a lot about Employee Stock Ownership Plans (ESOPs).  According to some of the top financial advisors in the area, there is a reemergence of the ESOP and several companies are starting to look at ESOPs again as a way of transition and a great way to create longevity and ensure legacy in companies.

James Wallace, Managing Director, Wealth Management, within the Global Corporate & Institutional Advisory Services group at Merrill Lynch in Atlanta, sat down with GeorgiaCEO to discuss this growing trend, the benefits of ESOPs and ways companies can structure a plan that benefits the unique overall strategy of their business. 

What can you tell us about the new trend of the reemergence of the employee stock ownership plan?  

“We are seeing renewed interest in the employee stock ownership plan (ESOP), particularly within Fortune 1,000 companies. There is once again a trend in business leaders issuing awards more broadly throughout corporate organizations. For example, some businesses are allotting all employees grants post IPO, or issuing grants to mark key corporate goals and objectives. 

What have you noticed locally and when did you first notice the trend?  

“ESOPs have been around for decades, but as national markets continue to put an extra emphasis on employee wellness and education, more and more companies are beginning to come up with different ways to keep their employees happy both financially and professionally. Locally we have seen the trend start to emerge with Fortune 1,000 companies, as their employees truly understand the value these sorts of programs can bring.”  

How does this trend create longevity and ensure legacy in companies? 

“ESOPs create longevity and ensure legacy in companies in a number of different ways. First, they get employees thinking like owners; therefore they have a bigger and better appreciation of the company. Additionally, it allows business owners who may not want to sell their business to keep it around for generations to come by putting ownership back in the hands of their employees.”  

What are other long-term benefits? What are short term benefits?

“ESOPs have both short and long-term benefits. In the long run, companies view ESOPs as beneficial because it provides employees with a peace of mind and enables them to accomplish their financial goals--managing personal debt, saving for first homes, building retirement and college savings, etc. Short-term, ESOPs are effective because they can be used to attract and retain skills-based, top talent in a competitive market.” 

When/why should a company consider ESOP?

“All publicly traded companies should have some form of equity as part of the overall strategy in compensation. The decision on how deeply to issue the awards throughout the organization is the biggest area of consideration. For any company considering an ESOP, I suggest the business owners work with a strategic financial partner who can help them decide the best way to go about implementing such programs.”  

What is the best way to structure the plan?    

“When structuring the plan, it’s important to have a balance of awards that both demonstrate long-term value like a full value award (restricted stock) and awards that tie directly to the underlying stocks performance (stock options or performance awards) that rise and fall with the market. This is the best approach and will help balance the goals and objectives of the plans.” 

Do you see this trend staying the course or what do you see for the future in this area of business?

“This trend is still on the rise, and is steadily gaining momentum. ESOPs allow administrators to differentiate themselves from their competitors by providing broad education and planning curriculums that assist employees in making better and stronger financial decisions.”