Explaining the Ups and Downs of Stock Value

It’s a confusing world out there full of strange terms, oddball behaviors and, all too often, scary pronouncements about America’s economic future and the perils of stock ownership.

If you’ve been watching the news, or news-like programs, here’s a few of the terms you’ve encountered:

• Sub-prime mortgage crisis
• CDOs
• Derivatives
• Mark-to-market accounting

As a leader working to communicate the value of stock ownership to your employees, what, if anything do you do about the vortex of valuation chaos swirling through the public markets? This is an opportunity to educate and inform your employees about your company, what it means to be an employee owner and how the stock valuation process works at your firm.

Here are five practical tips to keep in mind as you build employees’ skills, knowledge and enthusiasm about ESOP ownership by communicating stock value.

1. Begin with basic knowledge
   People hear terms like LIBOR or read about the public market place, but often don’t understand what drives value at their own companies. Take the time to communicate the factors affecting your company’s ESOP valuation. Pull them out of the appraisal report, translate them into “human-speak” and share them with employees.
   
   For instance, what drives profitability in your business? If the company is leveraged, how does that impact the valuation? What public companies does the valuator compare you with to determine the stock price? Use this information to illustrate how privately held company valuation is different, yet similar, to the value of stock traded on the NYSE or NASDAQ. Avoid formulas, discounted cash-flow and regression analysis; stick with the concrete and practical.
2. Build a line of sight to job-level performance
   Most employees want answers to two questions about the company: first, how is our business performing (the big picture, or, as employees often remark, what’s the bottom line?). And, second, how do “I” affect the bottom line in my daily job?
   
   Your goal: build a line of sight between employees’ jobs to the company’s overall performance.
3. Implement a Process to Regularly Discuss the Business
   Building a line sight requires ongoing business communications; one time just doesn’t do it. If you don't regularly discuss the business results, people will use their own gauges (like trucks leaving the docks, overtime worked, phone calls received) to measure the company's success. These homespun yardsticks become the fuel powering the rumor mill. You can squash rumor-mill misinformation by starting a business-communication process providing employees with real measures of business success.
   
   Sharing specific, targeted information will increase employees' understanding of the company. Operating numbers from a streamlined profit and loss - no more than six or seven lines, maximum - is one place to begin. If the thought of sharing that generates a Pepto-Bismol moment, pick some non-statement operational measures. You could show average order size compared with last year or expenses as percentages, rather than the actual numbers.
   
   No matter what you do, make sure you share the information consistently and provide people with reference points so they can understand the numbers' importance. Take it slow, but don't stop with sharing information: get people discussing the numbers and taking concrete action to improve them. Making the company more profitable is everyone's job, not just the leader's.
4. It's a Marathon, Not a Sprint
   To understand valuation, employees must know how the ESOP operates, benefits them and its long-term nature. The ongoing credit crisis provides a good opportunity to explain how your ESOP is different from what’s happening in the public market place. Use ESOP 101 to connect ownership with your firm's strategic plan. You can demonstrate how the company is working to build long-term wealth for everyone, not cooking up a fly-by-night, get quick rich overnight scheme or exploiting another accounting scam.
   
   Remind people they don't invest in the ESOP; it is earned as they work. That's unlike the 401(k) where they must ante up their own cash to receive a benefit. While doing that don’t sugar coat the fact that, with most ESOPs, employees’ retirement eggs are all in one basket. Employees need to continue participating in the 401k and investing outside the company to secure their retirement future. The ESOP is a piece of their retirement plan, not the entire pie.
5. Maximize the Value of Your Most Important Assets
   People are the foundation of your firm's competitive edge. Technology can be purchased, plants can be built, locations can be bought and innovations can be reverse engineered into commodities. The only things your competition cannot duplicate are your people and your firm's culture. Your people have the customer relationships, product knowledge, market experience and unique skills that differentiate your company from the competition.
   
   When employees are educated and informed about the ESOP, the business and stock valuation, they take steps to help their companies succeed. When they work in an atmosphere of mutual trust and respect, they gladly help their firms outdistance the competitors. They are your most important assets because you treat them like it.

To learn more about how Workplace Development can help you to communicate your ESOPs benefits, call Jim Bado at (419) 427-2435 or .