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Guidelines for Communicating a Second Stage Transaction

Debra Stoll Photo Contact Debra Stoll

By Debra Stoll, Director-Consulting at the Principal Financial Group®

Following a second stage transaction, participants usually see a decrease in stock value on their statements. They'll likely have questions and might even be worried about the company's future. This is a perfect time to refresh your ESOP education and communication plan.

Communication guidelines

What to communicate depends on where you are in your communication strategy so far, as well as the impact new debt will have on stock value. The level of understanding your participants already have about the ESOP will also be a factor.

Consider these guidelines as you communicate to participants:

  • Be straightforward, proactive. A clear explanation about the impact of new transaction debt can help manage fear and suspicions. A proactive approach can help minimize misinformation.
  • Keep it simple. Explain the transaction in easily digestible bits. It will take time for your employees to understand.
  • Show instead of tell. Pictures and examples can make more sense to employees than technical information.
  • Explain the overall plan. Let participants know the transaction was part of a carefully thought out plan and a temporary reduction in stock value was anticipated. Explain that the goal was to protect their interests.
  • Ease their minds. Reinforce their understanding that nothing comes out of their pockets. The ESOP is a company-funded benefit, and the company will make contributions to the ESOP to pay the ESOP debt.
  • Focus on the positive. Consider an ESOP statement format that highlights additional shares participants will receive as part of the new transaction.
  • Discuss company value. What has been the share price history and what is expected in the future? Has the stock been steadily increasing? Has it gone down due to economic recession? How do you stack up to competitors?
  • Emphasize their importance. Help participants understand that what they do every day directly impacts the company's success and the value of the stock in their accounts.
  • Involve leadership. When company leaders participate in ESOP communications, employees are much more receptive, responsive and view the message as more believable.

Highlight future benefits

If your data supports it, consider sharing projections for what a low, mid and mid-to highly compensated employee might expect to see as an ESOP account balance over the next 5 or 10 years. It's a great way to help your employees understand that even though there is a decrease in value post-transaction, over time, the value is expected to increase (and they will have more shares!) as profitability and other factors are met by the company.

Reinforce your ESOP message

ESOP communication is not a one-time proposition. The importance of reinforcing your message early and often, whether it's a new ESOP, a second stage transaction or a mature ESOP can't be overemphasized. It takes time for participants to understand what the ESOP means, especially when faced with changes.

Let the experts at the Principal Financial Group help you with a communication strategy that fits your situation and culture.

Insurance and plan administrative services are provided by Principal Life Insurance Company, a member of the Principal Financial Group (The Principal®), Des Moines, IA 50392.

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.


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