Allow me to give you a hypothetical* set of circumstances:
- You work for a medium sized, private company that is managed by a board with a majority stock-holder/CEO/President kingpin.
- Said Maj-Stock-Ho/CEO/Prezzy is a bajillion years old and cannot walk without huffin'-shufflin'.
- Company has just experienced a small defection of top talent due to incongruous business theories**.
- To establish a plan for the future that involves transitioning Maj-Stock-Ho/CEO/Prezzy from his seat-o-power and get the underlings excited about the company, the Powers That Be have informally announced the initiative of an Employee Stock Ownership Plan (ESOP)***.
You with me? I mean "my friend"? I mean you? I mean.... it's hypothetical.****
Moving on.
So I've read up on ESOPs a bit and understand that they can be a great way for a majority stock owner to get out of their stock in a regimented way and enjoy some tax breaks in doing so. It's good for the company because the company gets a flood of cash whenever a stock offering happens and those offerings are like clockwork. It can foster a sense of ownership among employees as their hard work is directly related to the success of the company and therefore increases any ROI.
BUT...
There are some flaws and questions that bubble up here.
- You need to know if this ESOP is tied to your 401k and/or incentive compensation - AND it's questionable whether or not there will be any education on what type of ESOP is coming. In both cases this could mean that instead of YOU getting to chose how to invest your extra income, your company automatically puts all of your deferred retirement/bonus bucks into the same company for which you work. Which brings me to...
- You have all your eggs in one basket. Your retirement, your health insurance, your income! If your job goes away, your life is dramatically affected! Which brings me to...
- How is the stock price determined? Who holds the Powers That Be accountable? Can I get out of the stock when I want to like I can other investments? Which brings me to...
- If the value of the stock has anything to do with the shares available for purchase, does an age top-heavy company (more older folks than younger ones) mean that upcoming retirements will flood the stock pool and therefore devalue the stock for those left behind? Which brings me to....
- What if these unknowns, the age of the board members and executive team, the recent defection of these bright young-uns means that the company is not stable!? Who would buy stock in shaky company!?!?
(Take a deep breath. No real life hyperventilating over hypotheticals*****)
Say you were talking with your boss about this topic and s/he said something like:
"When I like working for a company, I invest in it. It shows that I am invested and good things (i.e. promotions) may happen sooner for me because I show interest."
That's like saying:
"Sure you can cut my left arm off in hopes that one day I'll be famous for being a one-armed juggler. I don't need to see your credentials or diploma on the wall. People live with one arm all the time and I'm right handed anyway! Bring on the circus!"
Ok, maybe an exaggeration, but don't you think that screams: "JUST TRUST ME".
You know who else said, "Trust me?"
Enron.
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*Real. This is real life. Someone advise me!
**Some bright young stars just left to start their own business because they believe the current executive team is driving the company and workers away from progress.
***The company already has some level of employee ownership. It's just not taken off as some employees have received pay cuts in the past couple years and no one has received bonuses - which used to be how people bought stock.
****Real, soooo real.
*****Someone get me a paper bag!
