This document discusses how to set up an effective ESOP Communications Committee. It provides an overview of different types of ESOP committees and their roles. It then discusses key considerations for establishing a Communications Committee, including its mission, structure, membership, budget, and bylaws. The document draws on examples from The Onyx Group and CTL Engineering to illustrate how they have successfully implemented Communications Committees to strengthen employee ownership culture.

1. ESOP Committees – How They Interact &
Setting up a Communications Committee
The ESOP Association
2012 Las Vegas Conference & Trade Show
November 8th & 9th
, 2012
Christopher Horner, Dickinson Wright PLLC
Tom Oettinger, The Onyx Group
Ali Jamshidi, CTL Engineering
Jay Simecek, The Ohio Employee Ownership Center
1TEA November 2012

2. ESOP Committees – How They Interact & Setting up a
Communications Committee
Agenda:
Introductions
Overview of committees in an ESOP
 Legal requirements
The Onyx Experience
The CTL Engineering Experience
Issues When Creating a Communications Committee
Q & A
2TEA November 2012

3. ESOP Committees – How They Interact &
Setting up a Communications Committee
…… Issues to CONSIDER
Roles
Mission / Scope
Structure
Membership / Representation
Term
Selection / Election
Budget
Meetings
Bylaws
3TEA November 2012

4. The Big Picture
 Linking employee ownership to corporate performance.
• Employee ownership is not enough.
• Research indicates that employee ownership plus employee participation
leads to increased corporate performance relative to employee ownership
alone.
TEA November 2012 4

5. Common Theme
• Goals: All committees have a common purpose: to facilitate the strategic mission
of the corporation.
• Structure: All committees have a common philosophical underpinning: The
objectives of the committee should dictate its characteristics.
• Resources: All committees should have access to the resource necessary and
appropriate to achieve their objectives.
• Evaluation: All committees should be evaluated and modified to increase
efficiency and achieve new strategic objectives.
TEA November 2012 5

6. What is an “ESOP Committee”?
 Administrative (Fiduciary) Committee
 Communications Committee
 Other “ESOP Committees”
TEA November 2012 6

7. Fiduciary Committee
TEA November 2012 7

8. Fiduciary Committee
 Decision-making regarding administration of the Plan
• Operation of Plan
• Management of Plan assets
 Advise the trustee of the ESOT
• Dispositions of employer securities
 May be a Named Fiduciary Under ERISA
• Fiduciary duties
TEA November 2012 8

9. Communications Committee
TEA November 2012 9

10. Communications Committee
 Decision-making regarding strategic employee ownership objectives
(Authoritative)
 Advise management and educate and train employee owners (Advisory)
 Not necessarily subject to ERISA fiduciary duties
TEA November 2012 10

11. Legally Required Communications
 Summary Plan Description (“SPD”)
– Summary of Material Modifications (“SMM”)
 Summary Annual Report (“SAR”)
 Participant Statement
 Disclose Governing Documents
– Plan Document
– Trust Agreement
– Form 5500
– Beneficiary Designation Elections
TEA November 2012 11

12. Purpose of ESOP
Communication Committees
 Help implement the strategic vision of employee ownership through
communication and education
TEA November 2012 12

13. Roles:
Board
 sets the vision of employee ownership
Management
 leads with primary role as communicators
ESOP Communication Committee
 employees involved in learning
TEA November 2012 13

14. Key Communication and Education Roles
 Communicate to employees that they are shareholders with a stake in
the company’s future
 Provide the knowledge and skills needed to think and act like owners
 Develop processes for open communication, information-sharing and
continual learning
 Lead employees to act as owners
TEA November 2012 14

15. CTL Engineering
• Headquartered in Columbus, Ohio
• Started in 1927
• Columbus Testing Laboratories
• 245 employee owners
• 100% employee owned (83% ESOP)
• Engineering and consulting services
• Telecommunications
• Security & Video Surveillance

16. CTL Engineering
Establishing CTL’s ESOP
• Eight years discussing with owner
• Company performance inconsistent
• 1990 made profit, but no cash
• Choices:
- Take a loan to pay taxes
- Create non-cash deduction

17. CTL Engineering
ESOP Solves CTL Problems
• Viable solution to owner’s tax issues
• Company stock contribution of 7% in 1991
• Another 7% contribution in 1992
• ESOP offered significant advantages
• ESOP good for all parties
Owners
86%
ESOP
14%

18. CTL Engineering
ESOP in Limbo
• Expected people to get on board
• People didn’t buy into ESOP concept
• Did little communication
• ESOP unimportant to most
• Owner was disappointed

19. CTL Engineering
Owner’s Options
Management
Buyout
Outsider
Purchaser
Sell to
ESOP

20. CTL Engineering
Owner Options
• Management preferred ESOP purchase
• Owner unsure ESOP was “right”
• “Tire kickers” visited our facilities
• Owner looking for financial commitment
• ESOP shrinking as people left CTL

21. CTL Engineering
Owner Sells to ESOP
• ESOP became most viable option
• Outside and insiders educate owner
• Financial and business benefits
• Building ownership culture
Mgmt
17%
ESOP
83%
TEA November 2012 21

22. CTL Engineering
Initiation of Fun Czars
Created to establish a higher morale
Non-executive personnel
One goal…build ESOP spirit and enthusiasm
Main result of our efforts…turnover has decreased and
retention has increased
Formal budget submitted and reviewed annually

23. CTL Engineering
Committee Challenges
Mature ESOP
• New participants aren’t seeing the benefit
• Rebalancing should help
Multiple offices
Over half of employees are in the field

24. CTL Engineering
What’s Worked
Visiting every office every other year
New hire training
Guess the Stock Value
ESOP representatives in every branch
All events are ESOP events
ESOP month
Quarterly ESOP Advisory

25. CTL Engineering
ESOP Culture ≠ Overnight Success
• Not everyone buys in right away
• Needs consistency and repetition
• Provide ESOP information in all forms

26. CTL Engineering
All Events=ESOP Events

27. CTL Engineering
Promote Involvement
Contest for best T-shirt design

28. CTL Engineering
What’s Worked - New
Quarterly ESOP Advisory
• Submit for a chance to win $100 American Express Gift Card

29. CTL Engineering
Fun Czars Results
Turnover decreased
Building ESOP environment/spirit
“May I speak to the owner?”
Receptionist: “You’re speaking to one.”
Think like owners
• Weathered the 2008 economic downturn
– Furloughs
– Suspended 401k Match
• No layoffs

30. CTL Engineering – Financial Education

31. CTL Engineering
Stock Value History 1995-2011
0
200
400
600
800
1000
1200
1400
1995 1997 1999 2001 2003 2005 2007 2009 2011
TEA November 2012 31

32. Cumulative Stock Return 2005-2011
25%
70%
562
4.3%
17.8%
15%
85%
645
7.3%
17.2%
25%
110%
804.50
20.9%
33.5%
19.2%
129.2%
959
24.4%
39.9%
-1%
128.2%
948.70
-14.1%
6.1%
.3%
128.5%
952
9.35%
24.92%
17.1%
145.6%
1115
22.13%
35.94%
Annual change
Cumulative
Stock Value
S&P 500
DJI A
CTL Stock
S&P 500
DJI A
12/ 10 12/ 11
10.6%
156.2%
1233
22.13%
41.47%
3/ 05 12/ 05 12/ 06 12/ 07 12/ 08 12/ 09

33. Mission/Guidelines/Bylaws
 Initially typically drafted by management or Board of Directors
 Committee then revises as needed
33TEA November 2012

34. Typical Mission Statement
 Support success of ESOP
 Support success of Company
 Encourage education and understanding of ESOP by employees
 Encourage and facilitate development of an ownership culture at the Company
34TEA November 2012

35. Scope of Responsibility for ESOP
Communications Committee
 ESOP Communication?
 Wages & Benefits?
 Marketing Strategy for Company Products?
 Quality Control Issues?
 ESOP Newsletter
 ESOP Training?
 ESOP and Company Celebrations?
 Annual Participant Meeting?
 Company Financial Information?
 Participant Voting (if pass-thru voting applies)?
 Attend ESOP Conferences and local training?
35TEA November 2012

36. Structure of ESOP Committee
 Number of members
 Eligibility for committee membership
 Term of membership
 Composition of committee
 Selection/Election Process
 Committee Mission/Guidelines/Bylaws
 Scope of Responsibility
36TEA November 2012

37. Number of Members
 Odd number to avoid tie votes?
• ≤ 4 people – probably too small
• ≥ 12 people – probably too large
37TEA November 2012

38. Eligibility to Serve on Committee
 All employees?
 Management only? Non-management only?
 Full-time employees only?
 ESOP Participants only?
 ESOP Participants who are at least partially vested only?
 Fully vested ESOP Participants only?
38TEA November 2012

39. Term of Office
 1 Year?
 2 Years?
 3 Years?
 1 Year with re-election possible but with majority of Committee not
eligible for re-election?
 3 Years with only 1/3 of committee elected each year?
 Unlimited as long as person is willing to serve?
39TEA November 2012

40. Representation of Constituencies
 Management vs. Non-management
 Old vs. New Employees
 Departments
 Locations
40TEA November 2012

41. Representation
on Board of Directors
 No representation of Committee on Board
 Committee Chair on Board automatically
 Management selects Board member
 Committee selects/elects Board member
41TEA November 2012

42. Committee Selection/Election
 Who Conducts selection/election?
 Who Counts Votes?
 What are the voting hours?
 Who’s eligible to vote?
 1 Person 1 Vote vs. 1 Share 1 Vote
 Who defines departments?
42TEA November 2012

43. Voting Methodology
 Ballot
 E-mail
 Phone
 FAX
 All of the above
 Raising hands at a meeting
43TEA November 2012

44. Committee Budget
 Direct Expenses
• Material for events
• Registration fees for conferences/seminars
• Travel to conferences/seminars/meetings
• Newsletter costs
• Communication costs
 Time spent by committee members
44TEA November 2012

45. Committee Meeting Issues
 Company time vs. after-hours
 Paid vs. unpaid
 Frequency of meetings
 Length of meetings
 Priority vs. departmental work assignments
45TEA November 2012

46. Selection of Committee Chair
 Elected position?
 Chosen by management?
 Highest level person on committee?
 Selected by committee members?
46TEA November 2012

47. Typical Bylaws
 Contain decisions reached re all the issues we are discussing in this program!
47TEA November 2012

48. Typical Guidelines
 Detailed policies and procedures for:
• Committee elections
• Committee officer selection and responsibilities
• Committee meetings
• Replacement for a departed committee member
• Committee functions
• Committee members attending ESOP Conferences and Programs
 Specification of scope of responsibility
48TEA November 2012