17 th Annual Multi-State ESOP Conference Pennsylvania / Delaware and New York / New Jersey Chapters The ESOP Association Scranton, PA | September 20, 2012 Facilitator Alexander P. Moss Praxis Consulting Group, Inc. ESOP Committees Roundtable

1 September 20, 2012 Today’s Agenda  A little framework to guide discussion  Questions: ours & yours Questions  Appendix: ESOP Committee Background, Issues, & Recommendations Appendix The ESOP Association | Multi-State ESOP Conference

What’s the Point? Better input = better decisions = better performance 2 September 20, 2012The ESOP Association | Multi-State ESOP Conference

3 September 20, 2012 Specific Ownership Behaviors  Take care of each other  Safety & health  Respect  Take care of our customers  Examples: quality, on-time performance  General: understanding & delivering our value proposition  Take care of our company and its assets  Profits & stock value  Physical: buildings, equipment, tools, etc.  Our name: reputation  Take care of other stakeholders  Local community  Our country and world  Continuous process improvement: everywhere, always The ESOP Association | Multi-State ESOP Conference

4 September 20, 2012 What Changes? What Are We Hoping? Senior Leaders Board of Directors appoint and oversee elect hire and oversee Shareholders Inside Investors Outside Investors CEO / President hire and oversee ESOP Trustees select when meet eligibility requirements ESOP Participants are represented by direct ESOP Fiduciary Committee Existing Structure Do Our Same Jobs, But Better The ESOP Association | Multi-State ESOP Conference SalariedHourly Employees

5 September 20, 2012 What Changes? What Are We Hoping? Senior Leaders Board of Directors appoint and oversee elect hire and oversee Shareholders Inside Investors Outside Investors CEO / President hire and oversee ESOP Trustees select when meet eligibility requirements ESOP Participants are represented by direct ESOP Fiduciary Committee The ESOP Association | Multi-State ESOP Conference advise select New Employee Participation Mechanisms SalariedHourly Employees Employee Owner Advisory Committee Shop Floor Teams Other Structures

6 September 20, 2012 The Big Picture  ESOP Committees are not required by law or most ESOP plans  You have tremendous flexibility  What are your goals  For sharing ownership through the ESOP?  For the ESOP Committee?  Everything else flows from these decisions The ESOP Association | Multi-State ESOP Conference

7 September 20, 2012 The Big Picture: 3 Legs Support Ongoing EC Effectiveness  Passion: doing things that matter  To employees  To the success of the business  Planning  How much should we take on?  Who will do what, when?  How will we support the execution?  Resources  Skills  Time  Cash The ESOP Association | Multi-State ESOP Conference

8 September 20, 2012 Planning Process  Planning Retreat  Review directives from leadership  Fine tune goals, prioritize  Develop a plan & budget for the 1 st months  Implementation: run the plan  Mid-stream: regular monitoring, support, readjustment  Towards the end  Evaluation  Plan & budget for next period The ESOP Association | Multi-State ESOP Conference

9 September 20, 2012 Making it work: It’s never “done”  Moving target:  what is “appropriate” evolves over time  employee-owners skills / readiness develop over time  Entropy: things fall apart  effectiveness will ebb and flow – it’s not linear  new people often have to relive old decisions  ongoing training and refocusing as needs, skills, and issues facing the company evolve  The upside is huge  better morale – feeling of connectedness, sense of community  better substantive decisions  better company performance The ESOP Association | Multi-State ESOP Conference

Questions: Goals & Authority  What are the goals of your ESOP committee?  Authority  What decisions does the EC make on its own?  On what other issues does it offer input?  Why?  How has this evolved, how do you keep the expectations clear? 10 September 20, 2012The ESOP Association | Multi-State ESOP Conference

Questions: Structure  What is your EC structure?  Members & criteria  Selection process: nominations, selection / election  Terms & rotation  Committee leadership & special roles  How does your structure reflect your goals? 11 September 20, 2012The ESOP Association | Multi-State ESOP Conference

Questions: Activities  What have been the most effective activities?  What activities have been less successful?  What themes do you see and how have you responded? 12 September 20, 2012The ESOP Association | Multi-State ESOP Conference

Questions: Budget  How much time do member spend – monthly, annually?  What is the expense budget and what are the key items?  Do you measure the return on this investment, and how? 13 September 20, 2012The ESOP Association | Multi-State ESOP Conference

14 September 20, 2012 Appendix: ESOP Committees Background, Issues, & Recommendations 1.Purpose & Goals: why?Purpose & Goals 2.Issues & Activities: what?Issues & Activities 3.Composition: who?Composition 4.Process: when & how?Process 5.Budget: how much?Budget 6.Lifecycle issues: what changes over time?Lifecycle issues 7.Bottom line: successful teamsBottom line See also: Article: “ESOP Committees: an Overview” and Article: “Inside the BL Companies ESOP Committee” The ESOP Association | Multi-State ESOP Conference

15 September 20, Purpose & Goals The ESOP Association | Multi-State ESOP Conference

16 September 20, 2012 Potential Roles & Structures  Communications committees – typically no consultation or input, but rather a vehicle / structure to pass info more effectively  Training & education committees – re ESOP, business literacy, other benefits, skill development, operational issues, etc.  Advisory committees – consider targeted issues, solicit input, develop recommendations that are folded into the decision-making process  ESOP Fiduciary committees  Ad hoc project teams  Ongoing operational problem-solving teams  Formal labor-management joint committees The ESOP Association | Multi-State ESOP Conference

17 September 20, 2012 Why Have Employee Participation?  Few legal requirements – ESOP or otherwise  Opportunity to contribute to improved performance  Many alternative structures to address different goals  Some legal restrictions – labor law, others  Risk of increasing confusion and hurting performance if not designed and implemented carefully The ESOP Association | Multi-State ESOP Conference

18 September 20, 2012 Participation Goals  “Let them in the game”  Enable employee-owners to contribute to decision making  appropriately: different degrees at the different levels  effectively  It’s a moving target:  what is “appropriate” evolves over time  employee-owners skills / readiness develop over time  participation backfires without training, information and rewards The ESOP Association | Multi-State ESOP Conference

19 September 20, 2012 Typical Company Before ESOP Senior Leaders Board of Directors appoint and oversee elect hire and oversee Shareholders Inside Investors Outside Investors SalariedHourly Employees CEO / President hire and oversee The ESOP Association | Multi-State ESOP Conference

20 September 20, 2012 What Changes, Where Does the ESOP Fit? Senior Leaders Board of Directors appoint and oversee elect hire and oversee Shareholders Inside Investors Outside Investors SalariedHourly Employees CEO / President hire and oversee ESOP Trustees select when meet eligibility requirements are represented by ESOP Participants direct ESOP Fiduciary Committee The ESOP Association | Multi-State ESOP Conference

21 September 20, 2012 What decisions must be shared with ESOP Participants?  For a small number of key governance issues in private companies, federal law requires that ESOP Trustees solicit ESOP participants’ direction  This is called “pass-through voting”  ESOP Trustee still must decide and vote the shares  Issues: merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets, others as required by federal regulators The ESOP Association | Multi-State ESOP Conference

22 September 20, 2012 Beyond the ESOP Requirements: “Participation” in What? Senior Leaders Board of Directors appoint and oversee elect hire and oversee Shareholders Inside Investors Outside Investors SalariedHourly Employees CEO / President hire and oversee ESOP Trustees select when meet eligibility requirements are represented by ESOP Participants direct ESOP Fiduciary Committee Existing Structure Do Our Same Jobs, But Better The ESOP Association | Multi-State ESOP Conference

23 September 20, 2012 Beyond the ESOP Requirements: “Participation” in What? Senior Leaders Board of Directors appoint and oversee elect hire and oversee Shareholders Inside Investors Outside Investors SalariedHourly Employees CEO / President hire and oversee ESOP Trustees select when meet eligibility requirements are represented by ESOP Participants direct ESOP Fiduciary Committee Employee Owner Advisory Committee Shop Floor Teams advise select New Employee Participation Mechanisms Other Structures The ESOP Association | Multi-State ESOP Conference

24 September 20, 2012 Different Types of Input Into Decision-Making  Information: employees are informed, either before or after decision is made  Advisory: employees make recommendation  Authority: employees make decision  Delegated  Negotiated The ESOP Association | Multi-State ESOP Conference

25 September 20, 2012 Participation Vehicles  Formal structure  Generally: formal group  Varying levels and limits to participation  Relationship to existing management structure  Can run parallel, or  Can be assigned specific “management” tasks  Clear boundaries and accountability necessary  Alternative: no new structure, employee input is a cultural norm The ESOP Association | Multi-State ESOP Conference

26 September 20, Issues & Activities The ESOP Association | Multi-State ESOP Conference

27 September 20, 2012 Sample Activities  Annual meetings  ESOP statement meeting / celebration  October Employee Ownership Month activities  Shareholders Meeting or other business meetings  Regular written / web communications & meetings  ESOP: newsletters, FAQs, file libraries, training sessions, brown bag lunches  Ownership culture: clarifying and communicating the message – “what does it mean to be an owner here?”  Fun: games, contests, awareness events  External events  Visits to/from other ESOP companies  Local and national ESOP conferences  Insert ESOP everywhere – without overdoing it The ESOP Association | Multi-State ESOP Conference

28 September 20, 2012 Legal Constraints: Some things are “out of bounds”  Labor law: NRLA creates framework for collective bargaining  Issues: terms and conditions of employment  Mechanism: management and labor representatives negotiate contract  There is no bright line for “what’s permitted”  Respect other legal issues  Safety  Anti-discrimination  Others The ESOP Association | Multi-State ESOP Conference

29 September 20, Composition  Criteria: skills, representation, interest, committee mix  Number: how many members?  Selection: how should we pick them – vote vs. appoint?  Terms: how long should they serve?  Rotation: how do we bring in new blood without losing momentum?  EC leadership roles  Chair  Vice Chair  Other?  Support roles  Leadership liaison  Administrative support The ESOP Association | Multi-State ESOP Conference

30 September 20, Process: Getting Started  Defining the boundaries / charter  Initial selections  Initial planning  Implementation The ESOP Association | Multi-State ESOP Conference

31 September 20, 2012 Leadership: Defining the Boundaries  Responsibility Charting  Start with leadership  Take initial mission / charter to whole company  Revise later as needed The ESOP Association | Multi-State ESOP Conference

32 September 20, 2012 Initial Committee Selections  Methods  Appoint, with or without employee nominations  Elect, with or without leadership criteria  Filling gaps in representation, skills, or other criteria  Other methods?  Strengths & weaknesses The ESOP Association | Multi-State ESOP Conference

33 September 20, 2012 Initial Activities  Planning Retreat  Review directives from leadership  Fine tune goals, prioritize  Develop a plan & budget for the 1 st months  Implementation: run the plan  Mid-stream: regular monitoring, support, readjustment  Towards the end  Evaluation  Plan & budget for next period The ESOP Association | Multi-State ESOP Conference

34 September 20, Budget  Mainly time, some cash  How much you spend depends on what you want to accomplish  Company time vs. personal time  2 philosophies  Do a few things well & then get back to work – remember what creates value  See how it goes, ask for what you need as you go The ESOP Association | Multi-State ESOP Conference

35 September 20, 2012 Part 6. Lifecycle Issues  People: rotating members over time  Evolving goals, structure, & processes  Monitoring & evaluation  Other issues as your EC has matured? The ESOP Association | Multi-State ESOP Conference

36 September 20, 2012 People: how do we…  Select, orient, and support new members  Maintain institutional memory: keeping old timers in the mix  Maintain openness: help non-member employees peek inside and see what we do – informally, and/or incorporate into EC structure The ESOP Association | Multi-State ESOP Conference

37 September 20, 2012 Evolving Goals, Structure, & Processes  How have your goals evolved over time?  Things we don’t need to do any more?  Things we used to do well but have slipped?  Are we still set up correctly to best support our goals?  How, and how often, should we adapt our structure and our operating processes? The ESOP Association | Multi-State ESOP Conference

38 September 20, 2012 Monitoring & evaluation  Questions  Are we doing the right stuff?  Are we doing it well?  How are the needs evolving and are we adapting?  Process  Whom do we ask?  How & how often?  How do we use the data to help refocus the EC? The ESOP Association | Multi-State ESOP Conference

39 September 20, 2012 Process  2 techniques  Routine monitoring – frequent and quick  Periodic review – occasional and longer  In both cases  By whom?  How much time and when?  Advance prep / data gathering? The ESOP Association | Multi-State ESOP Conference

40 September 20, Bottom Line: Successful Teams The ESOP Association | Multi-State ESOP Conference

41 September 20, 2012 Best Practices for Teams  Clear and agreed-upon goals  Appropriate structure  charter and authority  representation and member selection processes  decision-making and other operational processes The ESOP Association | Multi-State ESOP Conference

42 September 20, 2012 Best Practices for Teams (2)  Access to resources to meet goals  right mix of people across the company  appropriate existing skills and/or training  time and budget to conduct work effectively  links to other appropriate functions – finance, HR, operations, etc.  constant support and reinforcement of purposes by senior leadership  Regular monitoring, evaluation, and continuous improvement The ESOP Association | Multi-State ESOP Conference

43 September 20, 2012 Making it work: It’s never “done”  Moving target:  what is “appropriate” evolves over time  employee-owners skills / readiness develop over time  Entropy: things fall apart  effectiveness will ebb and flow – it’s not linear  new people often have to relive old decisions  ongoing training and refocusing as needs, skills, and issues facing the company evolve  The upside is huge  better morale – feeling of connectedness, sense of community  better substantive decisions  better company performance The ESOP Association | Multi-State ESOP Conference

Contact Information Alex Moss Principal Praxis Consulting Group Philadelphia, PA September 20, 2012The ESOP Association | Multi-State ESOP Conference