What an interesting spring it has been, we’ve seen Employee Ownership Trusts (EOTs) development proposals in the budget, in the news, and have been very busy in our offices. In June’s newsletter, we thought we’d share with you a current clients’ Canadian ESOP design and implementation.
Engage employees across the organization to be more consciously aware of the “Big Picture” at the Company.
Enhance the commitment and motivation of the team.
Create a long-term, flexible exit and succession plan for the current Owners.
Retain the people who drive the success of the company.
Attract qualified and entrepreneurial talent.
During stage one, we performed a total of 10 owner/employee interviews and 51 employee questionnaires. These interviews and questionnaires allowed us to gain insight into both the employees’ and owners’ understanding of ESOPs and what participation would look like for this potential ESOP. Our client provided us with all requested documentation regarding the company’s structure and current financial situation and our analysis began. Utilizing the information, we then prepared a Feasibility and Recommendations Report that outlined the unique plan design for this company. We met with the client to review any questions they had regarding the report and our general conclusion. Finding that an ESOP was feasible and after reviewing the recommendations with the client, we were then headed into Stage two of our design and implementation model based on our recommendations – a broad-based equity plan.
Stage two began with an owner survey to gather data on how the owner was leaning on certain decisions such as launch date, financial disclosure, eligibility, purchase methods, etc. These responses were used to prepare the preliminary ESOP design documents, the ESOP Blueprint. Next was the formation of the client’s ESOP team. We like to start these team sessions with an Ownership Thinking exercise to get everyone in the mentality of what it means to be an owner within the ESOP. The purpose of the ESOP Team is to create the conditions for a participatory design approach. Our meeting progressed with a full review of the ESOP Blueprint which is the document from which the Employee Shareholder Agreement will be based on.
Some of the design elements in the ESOP Blueprint that the ESOP Team provides input on before it is finalized are:
Eligibility (broad-based or key-person plan, what is the waiting period)
Allocation (how shares are allocated to eligible employees)
Purchase methods (payroll deduction, shares as part of a bonus, loans, etc.)
Minimarket (participants can sell or buy during a brief internal market)
Buy-out (what happens to shares when someone leaves)
Tax implications (using a trust to buy shares of departing employees so that employees of a CCPC can access the capital gains exemption)
Risks (liquidity, market, tax, etc.)
Currently, there is a general ESOP info session being scheduled, a valuation is being conducted, tax reviews are underway, legal documents are being drafted, and communicated materials are being created. The final launch is scheduled for October 2022 where employees will receive an information package containing an intro letter from the President, the ESOP Blueprint, all legal documents, tax summary, share allocation letter, and FAQs. They will then have about a month to review the information and make their decision to participate. Finally, we would run the CORE4ESOP survey, which is a performance analysis tool to help support the success of the ESOP.
In 2023, we will provide a client update to hear how their ESOP launch went.
Learn more about Canadian ESOP design by completing the feasibility survey, joining our newsletter, attending one of our events, and following us on social media (ESOP Builders on LinkedIn, Twitter, Facebook, and YouTube).
By Joanna Phillips, CHRL, CVB, Vice President & Colleen Johe, Employee Ownership Specialist
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