ESOP companies contemplating the implementation of an equity compensation or executive compensation plan must look carefully at its impact on stock value. A thorough analysis of valuation consequences as part of the plan design is critical. In addition, the ESOP’s trustees should understand the underlying reasons for the plan’s implementation and the expected behaviors the plan is intended to drive. Plans should generally be designed to drive growth and/or profitability goals. In addition, they can be used to both recruit and retain key employees. A well-designed plan will provide meaningful rewards to the plan participants, but not to the detriment of the ESOP participants.
Original content written for The National Center for Employee Ownership, Executive and Director Compensation in ESOP Companies, Sixth Edition (2020). The full digital publication is available for purchase from NCEO here.