Proceeds in sale of company for short tenured employee

[ESOP Rookie]

I have been at my ESOP company for almost 2 years. and this is my first experience at an ESOP. We are 100% ESOP and 2019 will be the first year eligible for an ESOP contribution. As an Executive, my pay is on the higher end. However, since I have only been there 2 years I have not had the chance to accumulate any shares. We are in the early stagers of selling the customer and I can not seem to find a good source on how funds are distributed among the employees. I have read that the proceeds of the sales would be distributed based on % compensation of on overall compensation (like the normal contributions are). However this does not seem logical as a line and staff employee who has been with the company for say 25 years and accumulated a decent amount of shares would not get as much as an executive who has higher compensation but much less tenure. Has anyone had experience with this. As an executive I obviously want to have financial participation in a sale, but if payment to employees is based on shares I would not be receiving much. What other compensation options are there in an ESOP since the company is 100% employee owned and all money goes to the shareholders? Thank you in advance for the help.

[ESOP Guy]

There could be a lot going on there so it is hard to give a good answer based on what you have written. 

It will depend a lot on if there are just allocated shares (all the shares are in someone's account) or if there are still suspense shares (a loan was used to buy the shares in the ESOP and the loan isn't fully paid.)

 

The sales proceeds will follow the shares like any other company sale.  So if all the shares are allocated that is how the money will flow.  If there are suspense shares it gets more complex very quickly.  How the sales proceeds after the loan is paid off on the suspense shares there can be some discretion on that allocation.  If you are part of the executive team that is making the decisions regarding the ESOP you need to talk to the TPA, lawyers and trustee to make sure everyone understands how the suspense share proceeds are going to be handled.  If you are an executive but not part of ESOP decision team you might just have to ask or wait and find out what is going to happen.   You best chance to get an allocation given your service is if they allocate the proceeds from the suspense shares on compensation.   They however are not required to do that.  They could allocate most of those proceeds as a gain which would favor the people with the allocated shares.  

 

That is about as good of an answer I can give without a lot more details and this not becoming too long. 

[ESOP Rookie]

There are no suspense shares as the loan was paid off almost 10 years ago. Everything is pretty straight forward. The company is 100% ESOP owned and the transaction would be a 100% stock purchase by a non-ESOP company. So the ESOP would be terminated as part of the close of the transaction. Are there any other scenarios in which a short term executive could benefit from the sale or I am just really that unlucky to be an executive in a company that is selling and not able to participate? Any ideas would be extremely appreciated. Thank you.

[justanotheradmin]

1 hour ago, ESOP Rookie said:

There are no suspense shares as the loan was paid off almost 10 years ago. Everything is pretty straight forward. The company is 100% ESOP owned and the transaction would be a 100% stock purchase by a non-ESOP company. So the ESOP would be terminated as part of the close of the transaction. Are there any other scenarios in which a short term executive could benefit from the sale or I am just really that unlucky to be an executive in a company that is selling and not able to participate? Any ideas would be extremely appreciated. Thank you.

I think you are correct. You aren't a shareholder - so you don't benefit from the sale.

It just happens that the shares are held by the ESOP. I suppose you could ask for a bonus if you were instrumental in the sale of the company, but I don't have any ideas. I think when small companies are bought or sold the employees don't typically have an expectation that they will benefit monetarily from the transaction. It just happens that a number of them will because of their shares in the ESOP. You aren't one of the lucky ones. 

[ESOP Guy]

2 hours ago, ESOP Rookie said:

There are no suspense shares as the loan was paid off almost 10 years ago. Everything is pretty straight forward. The company is 100% ESOP owned and the transaction would be a 100% stock purchase by a non-ESOP company. So the ESOP would be terminated as part of the close of the transaction. Are there any other scenarios in which a short term executive could benefit from the sale or I am just really that unlucky to be an executive in a company that is selling and not able to participate? Any ideas would be extremely appreciated. Thank you.

Yeah it sounds like you won't benefit much from the sale through the ESOP.  So unless they agreed to give you SARs or phantom stock as part of your pay when hired I it sounds like you need to keep your expectations pretty low in terms of sales proceeds.