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Employee Share Ownership Plans
An Employee Share Ownership Plan or "ESOP" is an employee benefit plan which allows employees to purchase and hold securities in a company.
There are many reasons for establishing an ESOP:
- To motivate employees and to maximize their commitment to a company's long term goals by providing them with the ability to share in the company's growth,
- To retain employees by providing them the opportunity to own company securities, especially when the company is in an industry where ESOP is a common form of compensation, and,
- To create a market for the securities by giving company securities broader distribution.
The principal advantage of an ESOP over employee option arrangements is that employees can elect to purchase existing securities of the company through payroll deductions. If securities are purchased through the facilities of a stock exchange, the company is not required to obtain securityholder approval for the plan and the securities of the company are not diluted by the plan. Alternatively, the company can issue securities from treasury but appropriate shareholder and regulatory approvals would be required.
Establishing & Administering and ESOP
An ESOP is created by a trust instrument which sets out the terms under which the trustee agrees to purchase, distribute and hold in trust the plan assets. The ESOP is established by the authority of the Board of Directors. The trustee of the ESOP is independent from the company and is bound by the ESOP plan text. The trustee, however, will seek and consider the advice of Management when issues arise that are not clearly addressed by the plan text.
In designing an ESOP, the plan text must consider a number of legal and human resources issues and provide the trustee with clear instructions in administering the plan. These include:
- Who is eligible to participate in the plan? Is it based on the employees position or tenure within the company or both?
- Is the ESOP an employee only contribution plan or is the company going to match contributions?
- Does the ESOP allow for the plan assets to be held in an RSP or Spousal RSP account?
- What is the frequency by which the employee contributes to the ESOP?
- Is there a vesting period, and if so, what happens if the employee leaves and their plan assets are not vested?
- How does the ESOP address employee terminations, suspensions, and leaves of absence?
- What, if any, are the restrictions concerning the withdrawal, transfer or sale of securities held in a participant's account?
- Once contributions are received, what is the timing of security purchases (i.e. quarterly, semi-monthly, monthly)?
- If the company pays dividends, does the employee receive a cash payment or can the funds be used to buy additional securities? Does the employee have an option?
- How does the trustee assist in providing information for insider trading reporting?
- What reports are provided to the company and the employee and reporting frequency?
- Does the company's Human Resource Department and ESOP participants have web access to reports?
- Ensuring plan members receive proxy materials for securityholder meetings?
How Can Olympia Help
Olympia Trust Company has been offering corporate trust services for over eleven years and offering ESOP Trust Administration services for over ten years.
As trustee, we provide the following services:
- Olympia will review the ESOP structure with management to ensure that all issues are addressed and that clear roles and responsibilities are created.
- We will communicate with corporate counsel and the company to assist in drafting the ESOP plan text and trust instrument.
- We will assist the company in drafting the necessary forms to be utilized by employees who wish to participate in the plan.
- Olympia will open accounts for the participants ensuring that they are in compliance with the terms of the plan text and our service agreement. We also ensure that all contributions directed to the participants' RSP or Spousal RSP are segregated from non-RSP contributions.
- Olympia will open the necessary bank and brokerage accounts required in the administration of the ESOP.
- Based upon contribution frequency, Olympia will receive cash contributions and, in accordance with the terms of the ESOP, will purchase, allocate and maintain the securities in the participants' accounts.
- Olympia will process all plan terminations including issuing tax receipts required upon the disposition of any plan securities.
- On a monthly basis, Olympia will provide the company with a plan summary which will assist in providing insider trading information for SEDI reporting purposes.
- On a quarterly basis, or more frequently as determined by the company, Olympia will issue a statement of account to each participant disclosing contribution information, security purchase information and all related transactions.
- At year-end, Olympia will issue tax receipts to the participants, in relation to sales transactions and RSP contributions.
- Upon implementation of the plan, Olympia will prepare a "fact sheet" for the benefit of the employees summarizing the features of the plan. Upon request, a group information session can be arranged with our ESOP Plan Specialist.
Additional Information
If you are interested in implementing an Employee Share Ownership Plan for your employees or require more information, please contact your account officer or Rachel Gregory at (403) 261 8454 or rachel@olympiatrust.com
