Any of you guys an ESOP? - Page 2
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  1. #21
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    You list your occupation as "GM"

    So your part of the management team ?

    Of course it's a good deal for you.

  2. #22
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    Quote Originally Posted by digger doug View Post
    You list your occupation as "GM"

    So your part of the management team ?

    Of course it's a good deal for you.
    You're just showing your ignorance with that reply. Are you privy to the structure of our ESOP? What makes you think my shares are disproportionate to the other participants? You also have no idea how transparent a business must be in the eyes of the DOL once you become a 100% ESOP owned company. You don't have to worry about the IRS so much as you don't pay Federal taxes once 100%.

    So what you're saying is, if your current company that you work for decided to sell the business, you would opt for them selling to the highest bidder? Yes, they should do that instead of selling the business to the company thereby letting the employees reap future earnings as beneficiaries? So where's the catch? Not one employee puts a penny into this plan. No, instead, they're expected to come to work and do their job. That's it.

    Human nature is to not like what you don't understand. I get it if you have reservations about something but throwing assumptions like that in a discussion you obviously know nothing about really doesn't contribute much to the topic.

  3. #23
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    My former employer was an ESOP and it worked well for us, for the most part. The former owners claimed they made it an ESOP out of the goodness of their hearts but to be honest I think it also allowed them to more or less name their own price for the business and get substantially more money for it then by selling it outright. It took 10 years to pay off the loans. Each year, 10% of the stock shares got distributed to the employees. Your fractional cut of the stock each year was your salary divided by the total salaries paid to all employees.

    The value of stock we got each year easily equaled 25-30% of our salary.

    Now, there is a catch once we hit the 10 year mark because the company is paid off and there is no more stock to distribute. At this point, you have to rely on a few things: people retiring or quitting whose shares then get recycled back to the employees, or you can issue new shares but this dilutes the value of the shares already distributed.

    Since I have left the company and the loan is now paid off, the stock price has taken a big hit. This is because the stock valuation was partially based off of inflated sales and profit projections from the former president that never materialized. Because of this, the stock ended up getting devalued by about 20% in 1 year. We were always told by management that the stock price could not be manipulated since the valuation was done by an impartial 3rd party but we have now found out this isn't the case.

    Also, since the loan is now paid off the company is debt free so the stock doesn't go up like it used to when debt was being paid off every year. Really the only thing that drives the stock price now is growth. The stock used to go up 25%-40% a year when the loan was being paid off. Now it is lucky to go up a few % per year.

    As someone else already mentioned, ESOP's do not have to pay federal taxes. In our case we received pretty sizable profit-sharing bonuses because of this.

    I probably made a total of around $650,000 over the years I was in the ESOP. My stock value when I quit was around $220,000. I still haven't received a penny because you get paid out 20% per year between 5-10 years after you leave the company, unless you make it to retirement. The payout value is whatever the stock is worth the year it gets paid out, not when I quit so it could be a lot more or less then the value when I quit.

    I still think you will be miles ahead with an ESOP vs. an employer match of a few % to a 401k. However, it should definitely not be your only source of retirement. Also, at least where I worked they paid less then the competition and justified it because you would get stock shares each year. However, once you figure out you can make 25-30% more elsewhere, those stock shares don't feel like they are worth so much anymore. Never forget...ENRON was an ESOP.

  4. #24
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    An ESOP is kind of like a ship where the captain takes the contents of the purser's chest and rows off with the best dinghy saying, "Good luck with the ship guys!"

  5. Likes digger doug liked this post
  6. #25
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    The biggest problem with ESOPs is that during the most critical time for people to buy in (figuratively) is also the hardest time to show a profit. If the company was sitting on a pile of cash (and the owner wasn't just going to pull it out) and could buy the shares from the owner without any additional liability that would be ideal, but who sits on that kind of cash? If the company has extremely high margins, then it's also less of a road bump, but owners of a company in that kind of position are more likely to sell to a private buyer for more money.

    They're complicated, highly regulated, and generally the original ESOP plan is written by an owner in the owners best interest to whatever extent allowable by law, and employees are loathe to accept any additional responsibility in the organization for the free money divested as share distributions and the relative security of knowing the malaise addled grandson isn't going to take over and run it into the ground or sell it to the competitor that just wanted the machines and is moving them to their plant.

    So like anything, they can be good or bad and it's far easier to dick one up than to do it right. Like has been said, valuations look at assets and liability, cash on hand, and growth of net revenue. They look at other things, but in my experience debt, cash and revenue are the 3 main factors. Debt goes down, valuation goes up. Cash and revenue goes up, valuation goes up, and vice versa.


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