Rewarding Workers With Company Shares During the Pandemic

In this opinion article from Sheila Frierson with Computershare, she discusses five factors to consider for rewarding front-line employees during this period of economic difficulty.

Many of us have been humbled by the selfless work of grocery store workers and other essential workers such as delivery drivers during the COVID-19 pandemic.

Speaking to our clients, we know that many businesses in the retail and logistics sectors are actively looking at ways to help front-line and hourly paid staff, many of whom are experiencing difficult working conditions and a greater impact on their finances as a result of the pandemic. Companies also want to ensure that employees continue to feel valued and appreciated during this very difficult period.

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Wage increases, cash bonuses and additional paid time off (PTO) can provide short-term motivation and help retain employees during tough times, but many companies are also looking for ways to reduce their own spending.

Employee stock purchase plans (ESPPs) are one way companies can support essential employees and encourage long-term business success while the pandemic is creating financial complications for both employers and their staff.

In a report Computershare produced in partnership with Infinite Equity, Elizabeth Stoudt, partner at Infinite Equity, emphasizes the benefits of employees having equal access to shares: “Losing essential employees because they feel undervalued means companies lose skills and experience from their workforce and must spend time and resources on hiring and training. Granting equity instead of cash-based incentives is more cost effective and enables companies to focus cash on other expenses while also helping retention and engagement by ensuring employees feel valued.”

If your company is considering how best to reward front-line workers through employee shares, first assess the following five factors:

1: Understand the best type of reward plan for your employee base: Non-qualified employee stock purchase plans with an employer match typically enable employees to purchase shares after income tax. Such plans have fewer restrictions on their structure, because they are not affected by tax rules or regulations around eligibility. As a result, companies can design them in a way that targets specific employees, enabling them to focus on essential workers who are more likely to work hourly or have a lower wage base. Fractional share plans enable employees who would otherwise struggle to buy a whole share at purchase to participate in the plan. Cashless participation plans also enable hourly or lower paid workers with little or no disposable income to build up equity.

2: Use internal benchmarking and research pay and equity among competitors: Companies may benefit from additional internal pay or equity analyses, which can help ensure employees receive the right levels of compensation. Researching the approach of competitors can also help companies better understand the right compensation model.

3: Be aware of the financial effects of any changes: Any modeling or planning should anticipate the effect of equity awards or bonuses on the business. It may be easier and more efficient to approve additional shares or a new share plan than other incentive programs.

4: Understand the mechanisms for distributing awards: Companies should design award plans in a way that ensures they meet any expectations they have created among employees over annual grant timings. Delays and access issues can erode employee trust, particularly during difficult times, and undo the sense of goodwill that the plan was designed to create.

5: Be sensitive to perceptions over fairness: Unveiling comparatively lucrative packages for senior executives at the same time as announcing changes to share plans for other employees can damage employee relations. Full value equity awards, which level out the differences between executives and employees, can help create a mutual culture of share ownership.

Sheila Frierson is president, Plan Managers, U.S., at global equity plan provider Computershare.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.

Supreme Court Asked to Weigh in on Multiemployer Plan Withdrawal Liability for PE Firms

A multiemployer pension fund argues that an appellate court decision shields private equity firms that take on a withdrawing employer from withdrawal liability.

The New England Teamsters and Trucking Industry Pension Fund has filed a petition with the U.S. Supreme Court in its long-running legal attempt to collect withdrawal liability from two entities of Sun Capital Partners as members of an implied partnership-in-fact under “common control” with Scott Brass Inc. (SBI), a withdrawing employer from the fund.

The petition asks whether the 1st U.S. Circuit Court of Appeals’ holding that the Sun Funds did not form a partnership-in-fact is inconsistent with the Supreme Court’s precedent in Culbertson v. Commissioner and presents a conflict among the circuits. It also asks whether the 1st Circuit’s analysis has created a judicial exemption shielding private equity funds from withdrawal liability in contravention of the purpose of the Employee Retirement Income Security Act (ERISA) and the Multiemployer Pension Plan Amendments Act (MPPAA).

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The 1st Circuit reversed a U.S. District Court ruling that there was an implied partnership-in-fact which constituted a control group and made the two funds liable for the pro rata share of unfunded vested benefits owed to the pension fund. The 1st Circuit reversed the decision because it concluded the multi-factored partnership test set forth in the case of Luna v. Commissioner had not been met, and it couldn’t conclude that Congress intended to impose liability in this scenario.

In its petition, the New England Teamsters and Trucking Industry Pension Fund said the appellate court’s decision reversing the district court’s finding of a partnership-in-fact is based on its “reluctance” to impose withdrawal liability for private equity funds and provides “a blueprint for such funds to escape withdrawal liability while securing virtually risk-free investments in portfolio companies with known, unfunded pension liability.” The pension fund says the decision limits recovery of withdrawal liability by multiemployer pension funds.

New England Teamsters argues that the 1st Circuit decision failed to follow the totality of the circumstances test outlined by the Supreme Court in Commissioner v. Culbertson (1949), which the fund says, “is the seminal case in determining whether a partnership exists.” The fund says the appellate court’s analysis under Luna v. Commissioner, a 1964 Tax Court case, is narrower. “By limiting its analysis to the ‘Luna factors,’ the decision ignores the facts that throw light on the ‘true intent’ of the parties, specifically the undisputed fact that all of the entities in question were controlled by the same two men,” the petition says. “As the sole members of the limited partner committees, [the two men] made all of the decisions (both before and after the purchase of SBI), while hiding behind the guise of an LLC.”

In addition, New England Teamsters says the 1st Circuit’s analysis is informed by a misstatement of the purpose of ERISA and the MPPAA. “It finds without justification that a principal purpose of the statute is ‘to encourage the private sector to invest in, or assume control of, struggling companies with pension plans.’ Citing this misstatement, it seeks authorization from Congress and the Pension Benefit Guaranty Corporation (PBGC) which reaches beyond what is provided in the current statute in order to hold private equity funds liable for withdrawal liability,” the petition says.

The pension fund argues that this is at odds with the purpose of the MPPAA acknowledged by the Supreme Court—to protect multiemployer plans from the financial burdens that result when one employer withdraws from a multiemployer plan without first funding its uncovered liabilities.

“In essence, it has created a judicial exemption to withdrawal liability that shields private equity firms,” the petition says.

The case is important as more private equity funds do acquisitions in industries where multiemployer plans are common, according to John Lowell, Atlanta-based actuary and partner with October Three Consulting LLC.

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