If an ESOP is considered the best way to go, does everyone have to participate?

ESOPs are employee benefit plans that can be introduced by employers without employee consent. The primary exception to this standard regards employers covered by collective bargaining contracts. ESOPs are a mandatory subject of bargaining so union groups must be consulted if employers wish to include union members in an ESOP.

Most ESOPs, including very possibly an ESOP structure that could take place with the Blethen Maine newspapers, do not involve any direct, “at-risk” equity investment by employees. They are, instead, benefit plans that companies design both to benefit from the tax advantages they provide and to motivate employees.

Most ESOP transactions that have been reported in the media over the past thirty years in unionized industries such as steel, auto and airlines have been “concessionary” or “investment bargaining” ESOPs where ESOP stock is “traded” in exchange for concessions in wages, benefits and work rules. It is interesting to note that these situations amount to no more than 2% of the many thousands of ESOP transactions completed over the past 30 years, a tiny fraction of the total. But they are the transactions that have attracted the most press. In most of the “concessionary” or “investment bargaining” cases, all union members must follow the decisions made by their union leadership, often after a rank-and-file vote. In case of the Portland Newspaper Guild, the final decision would rest with the membership.

The fact that an S Corporation ESOP may be considered in the case of the Blethen Maine Newspapers does not necessarily mean that investors, beyond the employee base, will not expect a review of the costs of existing labor contracts. Any possible changes to those contracts though would have to proceed through ordinary collective bargaining, in this case with a new management team representing “New Corporation” or “NEWCO.”