Employee Share Ownership Plans: How to Design and Implement an ESOP in Canada


Employee Share Ownership Plans (ESOPs) are a powerful new tool in a world in which it is no longer business as usual.

Whether you want to attract and retain skilled workers, create a succession plan for a family business, combat the "brain drain," recognize the contributions your employees have made to your company's success, or need a way to turn your company around through improvements in productivity and morale, an ESOP could be the win-win ...

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Employee Share Ownership Plans (ESOPs) are a powerful new tool in a world in which it is no longer business as usual.

Whether you want to attract and retain skilled workers, create a succession plan for a family business, combat the "brain drain," recognize the contributions your employees have made to your company's success, or need a way to turn your company around through improvements in productivity and morale, an ESOP could be the win-win solution for your company.

An ESOP is a formal plan that allows employees to purchase shares in the company the work for. Employees think and act like owners because they do actually hold a very real stake in the company. Not only are ESOPs financially beneficial for employees; companies that offer these plans also reap tangible rewards in improved motivation, communication, productivity, and profitability.

Employee Share Ownership Plans is a comprehensive and practical guide to every aspect of designing and implementing ESOPs:

  • Explains the various objectives of an ESOP and the types of plans that exist.
  • Outlines all the processes that are at the foundation of implementing an ESOP: determining employee eligibility, financing, creating the implementation team, communicating the plan to employees, troubleshooting, and more.
  • Covers the more technical aspects of setting up an ESOP, such as business valuation, tax implications, legal requirements, and creating cross-border or international ESOPs.
  • Includes hands-on tools such as sample letters, shareholder agreements, and a comprehensive resource guide to ESOP professionals, web sites, and associations.
  • Features case studies, checklists, questionnaires, and frequently-asked questions.

ESOPs are becoming an increasingly important component of compensation and incentive packages, particularly in the high-tech sector, knowledge-based industries, and in any company that relies on a highly skilled workforce. They are very flexible and may be used in many types of situations for a variety of purposes. Because of their adaptability, no two ESOPs are the same, and each plan may be designed and custom fit to a particular culture and type of company.

This book will help business owners and managers, as well as their professional advisors, create a competitive advantage for any organization, publicly traded or privately owned.

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Product Details

  • ISBN-13: 9780471646228
  • Publisher: Wiley, John & Sons, Incorporated
  • Publication date: 9/7/2001
  • Edition number: 1
  • Pages: 288
  • Product dimensions: 5.90 (w) x 9.10 (h) x 1.00 (d)

Meet the Author

Perry Phillips has been a champion for the cause of ESOPs in Canada since the late 1980s. He is President of ESOP Builders Inc., a firm that specializes in the design and implementation of employee share ownership and stock option plans (for more information, visit www.esopbuilders.com).

He is a founding member of the ESOP Association of Canada, and an active promoter of the concept of employee share ownership. He has been involved with lobbying efforts before provincial and federal governments, speaks and writes frequently on employee share ownership, and is often featured or quoted in the media as an expert on the topic.

In addition to his expertise in structuring employee share ownership plans, Perry's extensive experience includes corporate reorganizations, mergers and acquisitions, financial litigation support, estate planning, buyouts, and financing.

He is a member of the Canadian Institute of Chartered Business Valuators; the Canadian Institute of Chartered Accountants; ESOP Association (Canada); the ESOP Association; the National Center for Employee Ownership; and the American Society of Appraisers.

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Table of Contents




Chapter One: What is an ESOP?

The Three Types of ESOP.

The Importance of Equity Types.


Chapter Two: ESOP Objectives.

A Convergence of Trends.

Attracting and Retaining Motivated Workers.

Jobs in Productivity and Profitability.

ESOPs and Succession Planning.

ESOPs and Business Financing.

ESOPs and Retirement Planning.

Spreading the Wealth.

Checklist for ESOP Candidates.

The ESOP Transformation Process: An Overview.

ESOP Goals and Strategies.

Time to Complete.

The ESOP Team.

Plan Design.

Transition to an ESOP Culture.


Chapter Three: Designing ESOPs.

Where Do the Shares Come From?

Number of Shares.

Stock Splits.

Corporate Structure.

Employee Eligibility.

Allocation Formula.


Buyout Provisions.

Share Acquisitions.

Portion of Ownership.




Communication Issues for Multi-Site, Multi-Target Audiences.

The ESOP Team.



Chapter Four: Financing ESOPs.

Employee Financing.


Chapter Five: Business Valuations and ESOPs.

Valuation Terms.

Going Concerns Versus Liquidation.

Approaches to Value.


Capitalization of Earnings.

Capitalization of Cash Flows.

Discounted Cash Flow.

Asset Values.

Tax Shield.

Rules of Thumb.

Correlation of Values.

Sanity Tests.

Shareholders' Agreements.

Valuation Issues in a Shareholders' Agreement.

Employee Share Ownership Plans and Special Valuation Issues.

Maximizing Shareholder Value.

Improving Financial Position.

Reduce Industry and Company Risk.

Convert Personal Goodwill into Commercial Goodwill.

Selling Cycle.

Tax Planning.


Chapter Six: ESOPs and Income Tax.

Types of Participation.

Methods of Ownership.

Strategies for the $500,000 Capital Gains Exemption.


Taxation of Dividends.

Treatment of Capital Gains and Losers.

Disposition of Shares.

Going Public.

Corporate Deductions for ESOPs.

Canadian Controlled Private Corporation Status.

Salary Deferral Arrangements.


Chapter Seven: ESOP Legal Requirements.

Different Objectives— Different Legal Implications.

Federal and Provincial Governments.

Specific Legal Issues Related to an ESOP.

Financial Assistance.

Ownership Issues.


Perpetuities and Restraint on Alienation.

Transferring and Assignment of Shares.

ESOP Legal Design Issues.

Downside-Protection Schemes.

Potential for Non-Employee Shareholder Reprised.

Potential for Employee Reprisal.

Shareholders' Agreement.

ESOP Holding Companies.


Chapter Eight: Administration and Communication.

Fostering an Ownership Mentality.

Communicating Ownership.


Twelve Successful Strategies for Creating a Participative Environment.



Chapter Nine: Post-ESOP Issues.

Profit-Sharing and Open-Book Management.

Definition and Types of Profit-Sharing Plans.

Conditions Required Before Starting.

Strategic Issues for Management.

Major Design Issues.

Open-Book Management.

Transition Issues.


Chapter 10: International ESOPs.

Special ESOP Issues.

Approaches to Cross-Border ESOPs.

Employee Ownership in Canada.

Employee Ownership in the United States.

How a Leveraged ESOP Works.

Tax Benefits.

How Employees Own Stock Through ESOPs.

How the ESOP is Governed.

What Kind of Employer Stock Must the ESOP Hold.

Equity Compensation Plans.

What is a Stock Option?

Exercise and Vesting Schedule.

How the Stock Price is Determined.

Type of Stock Options.

Employee Stock Purchase Plans.

ESOPs' Corporate Performance.

Employee Share Option Plans in the United Kingdom.

Recent Developments.

Appendix I: Case Studies.

Appendix II: Sample ESOP Engagement Letter.

Appendix III: Sample ESOP Questionnaire.

Appendix IV: Frequently Asked Questions.

Appendix V: Employee Blueprint.

Appendix VI: Shareholders' Agreement.

Appendix VII: Sources, Web Sites, and More.

Appendix VIII: Institutions.

Appendix IX: List of ESOP Professionals.


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