ESOPs: Considerations for Design and Governance

Virtual  |  February 15, 2024  |  11:30 AM - 12:45 PM CST

This panel explored the structure, benefits, and governance of Employee Stock Ownership Plans (ESOPs) as a tool for business succession, employee engagement, and long-term value creation. Panelists discussed how ESOPs work, the advantages and risks for owners and employees, tax implications, and the importance of thoughtful design and governance. Emphasis was placed on why ESOPs should be on the table for business owners considering exit strategies and how board members must understand their unique fiduciary responsibilities.

Key Topics Covered

• Overview of ESOPs: History, definition, and how they function as qualified retirement plans.
• Benefits to Business Owners: Tax efficiency, succession planning, and maintaining legacy.
• Tax Structure & Leverage: Use of Section 1042 deferrals and leveraged buyouts to finance transactions.
• Suitability & Limitations: When ESOPs are not appropriate—e.g., volatile earnings, lack of succession, or low sophistication.
• Employee Benefits: Wealth accumulation, job retention, engagement, and long-term participation.
• Governance Complexities: Roles of trustees, board members, and fiduciaries under ERISA rules.
• ESOP Risks: Valuation disputes, compliance failures, and repurchase obligations over time.

Key Takeaways

• ESOPs Are Powerful Succession Tools: When designed well, they balance owner goals, employee benefit, and business sustainability.
• Tax Advantages Are Significant: ESOPs offer compelling tax treatment for both owners and companies—when structured appropriately.
• Employee Wealth & Engagement Increase: ESOP participants typically build much higher retirement savings and stay longer with their companies.
• Not One-Size-Fits-All: Every ESOP must be custom-designed based on the company’s size, goals, and financial condition.
• Governance Requires Expertise: Boards and trustees must understand their fiduciary duties, especially around valuations and compliance.
• Plan Design Drives Success or Failure: Poor structure can cripple a business—getting it right up front is critical.
• Communication Builds Culture: Transparent, regular education and engagement with employee-owners strengthens ownership mindset and reduces risk.

Program Videos

View the complete program playlist, including the following video clips:

• What is an ESOP - Understanding the Basics
• Unlocking Employee Benefits: ESOP Advantages and Rights Explained
• Crafting a Solid Foundation: Essential Elements and Governance for ESOP Success
• ESOP Governance: Mitigating Risks and Navigating Committee Responsibilities
• Insights from Our Expert Panel: Key Takeaways

Program Resources

• ESOPS 101: Employee Stock Ownership Plans for Business Owners - Slide Deck
• Five Lessons Any Board Can Learn from ESOPs
• What is an Employee Stock Ownership Plan (ESOP)?

Panelists

Director, Columbia Forest Products, Human Active Technology, NACD Texas TriCities Chapter

Kris Manos

Kris Manos is an active director of public, private, and employee-owned companies. Kris acts as a catalyst for the boards on which she serves -- implementing best practices, bringing a diverse perspective, developing a curious culture, and overseeing organizational change; all to ensure the business is successful and the board fulfills its responsibilities to its stakeholders...

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Senior Counsel, Baker Botts ; Director, Baylor College of Medicine, Baylor University, Houston Christian High School, River Oaks Baptist School, NACD Texas TriCities Chapter

Gail Stewart, NACD.DC

As one of the country's leading executive compensation attorneys, Gail offers far more than legal experience. In addition to four decades of experience handling the complex intersection of federal and state employment law, tax and securities compliance...

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Senior Vice President - Financial Advisor, Senior Consulting Group, RBC Wealth Management

Kerry Withrow

Kerry Withrow is a Financial Advisor with 31 years of experience and is based out of Las Vegas, Nevada. 27 years of his career he has been with RBC. For the last 25 years his sole focus has been dedicated to the business owner segment...

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