By John Hoffmire
Myth #1 – You have to pay a lot for your ESOP
• There are groups such as the Beyster Institute that do all of what the private sector advisors do
• These alternatives are available in most states
• On the other hand, don’t ever pay too little to try a new advisor who is looking to set up or fix his or her first ESOP
Myth #2 – ESOP valuations swing too much year to year
• It is little discussed, but many ESOP valuations are “smoothed”
• Smoothing is a process where valuations don’t rise or fall as much as they would in a true market environment
• Editorial note: I think this is a good practice
Myth #3 – There can never be too much participative management
• Contrary to popular opinion, there are, at times, diminishing returns to participative management
• Signs of over-participation are that the vast majority feel there are too many meetings and high achievers are being held back
Myth #4 – All ESOPS have the same potential benefits to employees
• A statistical analysis shows that it is the industry an employee works in that determines, most, the size of an ESOP payout.
• Implications of this on acquisition strategy for ESOP companies are monumental
Myth #5 – An ESOP surpasses a non-ESOP which has good technology
• All other factors equal, an ESOP will not overcome a technology advantage possessed by a competitor
• Of course, this is dependent on the industry. But, ESOPS are not able to cure every ill of a firm
John Hoffmire is Chairman of the Center on Business and Poverty. He also holds the Carmen Porco Chair of Sustainable Business at the Center.
