Posts Tagged ‘Employee Share Plan’

Like most business owners real estate practices are particularly vulnerable to key staff leaving the business and taking with them key relationships, clients and information. Over the last month Michael Bova & I have spoken at 8 specific real estate functions on succession planning and the overwhelming feedback from attendees has been the desire to find a mechanism to engage key staff (including sharing the profits and rewards) and fund their own exit plan as part of the process.Many real estate businesses have grown well beyond the size where it is a simple and affordable for an individual to purchase that business – it is now quite common for rent rolls to exist with 500 or 1000 properties and at today’s multiples this is a sizeable purchase for any individual to make. While some funding is available (for more information on some of the funding options I strongly recommend the NAB hosted seminar this Thursday morning – see further details below) the funding will never carry 100% of the purchase price nor is it good practice to carry 100% of the risk.We have had considerable success with real estate businesses before by introducing a Peak Performance Trust to attract, retain, motivate and reward key people within your business. Another interesting finding during our tour was how many businesses were looking to their property manager as the most likely successor – in fact several business owners told me not only did property managers have the character, skill set and personalities to be good business leaders but often salespeople didn’t. Now of course there are many good salespeople running good real estate businesses are doing a good job – but we do often overlook property managers in terms of our real estate business succession strategy and the message here is simple – Don’t overlook any one.Please contact us to find out more information and asked for a copy of our Succession Plus Real Estate Industry report which includes updated industry benchmarking and some commentary from our recent conversations with agents throughout Australia.

A new UK paper ( http://www.employeeownership.co.uk/publications.asp ) on employee ownership poses this question by Willie Watt of Martin Currie and outlines some amazing improvements in this vital area. The paper examines ten UK businesses who have successfully adopted share plans where employees now own ( directly or indirectly ) equity in the business in which they work. As a tool to fund and implement business succession planning these plans are unmatched in their ability to provide a structured approach to a normally complicated funding issue for most business owners looking at their exit options. The reports matches many of our key concepts in introducing plans and highlights the longer term strategic approach we are fond of when implementing succession based share plans. ” The transfer of a business into employee ownership can very often be a process undertaken over an extended period of time.” The report looks at “concrete examples of how businesses have found the necessary capital to become employee-owned and at the issues involved in this process. ” Unfortunately many advisers still do not see and understand the true benefits of this type of approach – the report mentions banks, accountants and lawyers who all advised against the introduction of employee equity – but the quote from the previous owner of one successfully implemented plan speaks volumes – ” We believe employee ownership is the best way to fund, retain and develop talent.”

We have seen a lot of recent publicity in the area of Employee Share Plans and I believe there is a groundswell building – both from employers looking to engage employees more directly in the ownership and capital structure of their businesses and in employees wishing to participate more actively in the success of the business they work in and taking substantial steps to secure their financial future. As many of our clients will testify we have used these plans ( our own variant of them anyway ) to fund succession planning. The President of AEOA ( Australian Employee Ownership Association ) explained further in a recent statement: 

The Australian Employee Ownership Association (AEOA) is urging the Australian union movement to stop arguing with companies and to encourage employees to become shareholders. The organisation made a presentation yesterday to delegates attending the ACTU Congress in Brisbane, discussing the need for Australian business to embrace employee share trusts as a way to fund business through the Global Financial Crisis (GFC). In light of the recent budgetary employee share plan announcements, the AEOA will be calling on the Government to legislatively enshrine existing share requirements to encourage more businesses to set up employee share trusts.

“Employee ownership of companies is particularly important in this economic climate when various corporations are looking for injections of cash to stay afloat,” AEOA President Ian Woods said. “Day after day, we’re hearing more and more companies crying out for Government funding or international investment to survive. By raising funds through employee share trusts, businesses can retain Australian ownership and ensure that decisions are made in favour of Australian and its employees – not just for foreign shareholders and the executive team. An employee share trust is beneficial to both the company and the employees and can still attract favourable taxation treatment.”

 “Employee share ownership is implemented in about five percent of Australian businesses, compared to 20 percent in the USA and about 40 percent in France. The last year has shown us that the previous model of capitalism doesn’t work and that we need to look elsewhere to maintain economic growth into the future,” Mr Woods said. “Unions should really be considering this as the model of the future as it provides the facility to enshrine excellent conditions for workers in all tiers of a company.”

 Captain Ian Woods, President, AEOA, 3rd June, 2009

As business owners seek better ways to attract , retain and motivate key employees to lock in performance and build wealth, we find they often do not look at equity as a means to manage this – they have been long condiitoned to use income as the means to manage performance – pay increases, bonuses and overtime are the most common tools of employee performance management.
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A specific area of concern and interest is the utilisation of employee share plans and other equity plans to assist in funding and implementing succession. Australia lags behind both Europe and the US in the uptake of employee equity schemes (in all forms). Anecdotal evidence suggests this may be a substantial stimulus for implementing business succession planning and a substantial benefit to employer and employee alike. (more…)