ESOP Stock Evaluations vs Other Shareholder Market Value

Preface by saying the company is a small S Corp.  In recent years the evaluation of our company ESOP shares versus what the board sets as a price for all other shareholders has grown substantially different, with ESOP market value being now 20% less than what other shareholders value is.  Is this common within privately traded company’s with an ESOP.  

Valuation is a  constant bugaboo, and ESOP valuations are  considered to be "special" (e.g. not to be undertaken by a non-ESOP valuation expert), so a discrepancy between/among valuations by different persons for different purposes is neither unusual nor necessarily wrong, but it can be confusing and controversial. You will often find in ESOP valuation engagements a nondisclosure provision -- the ESOP valuation may not be disclosed or used for other than ESOP purposes. You should discuss this with the ESOP valuation professional for free education. Actually, it is not free because the appraiser is being paid and it is good fiduciary practice to get a good understanding of the ESOP valuation. It is the ESOP fiduciary that sets the valuation, based on the professional advice. Questions about the valuation, how it is derived, and what it means (including relative to other valuations) are an indication of good fiduciaries at work.   

The reasons for the differences in value are beyond the scope of the facts presented.  However, a higher redemption price for other shareholders could be dilutive to ESOP share value.  This could raise fiduciary issues under both state corporate law and ERISA.