Whether it be for a down payment or university tuition of a dependant we all run into larger than life expenses from time to time. When it comes to an ESOP, a mini market can often help deal with these issues. In an established ESOP the Plan Administrator (typically the Board) has the discretion to create in the future an internal market for share trading where ESOP shares may be bought and sold. This is referred to as the Mini market.
If implemented, it would be open to employees who own ESOP shares. Trades would be administered by the Company in order to facilitate the buying and selling of shares. The share trading price will be the annual share value, the FMV as calculated by the most recent valuation. The details of the structure would be provided at the time of implementation.
In a survey EBI conducted, 80% of the respondents utilize mini markets in their ESOP.
Of those, 90% offer the mini market annually. Most found their mini markets to be moderately successful in terms of what their employees wanted. Many saw their employees wanting to buy and sell multiple times a year and others found there were too few shares to produce liquidity in the mini market. These responses were collected in 2018. Like many aspects of the ESOP the mini market requires participation to be successful. Utilizing the mini market allows employees to buy and sell as they need, within the specified timeframe of course. Mini markets don’t have to be an annual event either; it can be at the discretion of the board or the participatory engagement of the employees. Your mini market can be when you decide based on demand and your comfort level. The mini market is designed to allow some liquidity for employees as well as an opportunity to increase their investment in the Company (subject to any caps).
The mini market furthers a participative culture by involving the employees in the process of buying and selling and the excitement that creates. It also raises to employees the importance of investing in their futures, which is ultimately in line with the growth of the company (appreciation in share value). It creates an atmosphere of ownership that can only come from owning shares. Further the sale of the shares to other employees (not the company) by way of the mini market may make the shares eligible for the Long Term Capital Gains Exemption (LCGE) making the sale gains tax free to the employees.
By Colleen Johe, Employee Ownership Specialist & Perry Phillips, President