How to Structure Stock Ownership Plans for Management Employees

WHY IT IS IMPORTANT TO MOTIVATE MANAGEMENT EMPLOYEES Attracting and retaining key employees is necessary to the success of any corporation. This factor is even more important in an ESOP company, since the number of beneficial owners in an ESOP company is much greater than in a non-ESOP company. The most effective way to motivate management employees is to give them a piece of the action. Management employees are accustomed to getting a substantial piece of the action whenever a management buyout is involved. Accordingly, it is sometimes important that management receive a piece of the action in the case of ESOP buyouts. Under IRS regulations, the “covered compensation” of a key employee is limited to $205,000. In addition, the “covered compensation” of the key management group in most companies is less than 5% of the total covered compensation of all employees. Since the key management group receives a limited ... Read More..

The ESOP Association 2009 Year-End Legislative Update

S. 1612 – The ESOP Promotion and Improvement Act of 2009: On August 6, 2009, Senator Blanche L. Lincoln (D-AR) introduced S. 1612, the ESOP Promotion and Improvement Act of 2009. The legislation has four sections, including an entirely new proposal to remove a 35 year bias against ESOP companies by the Small Business Administration. One, S. 1612 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, placed on the distributions from current earnings that are passed through to ESOP participants in cash. Two, S.1612 would clarifY that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax. Three, S. 1612 improves the 1042 ESOP tax deferred rollover provisions by (a.) permitting sellers to the ESOP of an S corporation to utilize the ESOP tax benefit referred to as the ... Read More..