Ownership in Firm, With a twist 2

[OSUCivlEng]

Ownership at the firm I work at is a bit different than most places that I am aware of, shares are simply given to you, as opposed to buying in. After talking to a few people, my understanding is that it's more of a way to add additional compensation to certain people without giving them a salary increase. Otherwise, the billing rates would be all messed up. The additional compensation is in the form of quarterly dividends paid out to owners. From what I can tell, there is much smaller group of owners who form a board of directors and actually make all the decisions. The rest of the owners are outside this group and have no real decision making ability on how the company is run. I imagine the larger group of owners is selected for the performance. I should also add that very few people know who all the owners actually are. It's kept somewhat secret, especially from the rest of the employees in the company.

About two years ago, I was told by the President of the firm I work for that I was going to be made an owner immediately. There were not any free shares at the time, so I would be given equivalent shares. There is no documentation of this, and my understanding was that this was the first time it had been done like that. I was given some very small quarterly distributions for the first year. Then some changes in tax laws stopped all distributions to all owners.

It has been two years and I have not received any documentation of my supposed equivalent shares, nor has there been any further discussion of it. At first I didn't really think much of it, because it was essentially a gift and I didn't have to pay for anything. The longer this has gone on though, the more I find myself questioning if this was some kind of carrot to get me to stay. I am trying not to become bitter about it, but the more I think about it the more it seems like it wasn't genuine. I am trying to figure out how to address this and ask questions without being too pushy or coming off as a jerk. Any suggestions?

 

[JAE]

I think you are correct to suspect this isn't very "real".

Without documentation you don't have any proof of ownership.
I've heard of Class A shares and Class B shares but never Class "Sucker" shares.

You have some choices then:
1. Stay with the firm (if you like it) and ignore these phantom shares.
2. Stay with the firm but start asking for documentation of your ownership. If they don't come through do item 1 above or quit.
3. Start looking elsewhere for a job. Don't expect to be compensated for your phantom shares.
4. Call the US Labor Dept. and stir up the pot - I think you can contact them anonymously. They may come in and investigate the firm.

 

[TigerGuy]

Sounds like a new twist on the ESOP (Employee Stock Ownership Plan) that so many companies push as a benefit. In those, you get the title of employee owner, but your opinion matters less than the dead spiders they sweep out every night.

Your situation sounds even worse. JAE is correct, if you like working there, what's the harm in staying and forgetting about the fictitious ownership stake you may or may not have.

Ownership groups can sometimes try sneaky and underhanded ways to get you to stay, to work harder, or to settle for less compensation. Other groups are very honest and open about how things work.

 

[RVAmeche]

IMO this sounds different from a traditional ESOP. I work in an ESOP that basically used that system to avoid outside investors (old guard members sold out their shares to fund the ESOP, now 401k Match is thru ESOP so we all become .0001% owners or whatever). However the main ownership of the firm is similar to OP - there's a tight group of real owners and then a wide smattering of lesser owners that have no say. But there's legit paperwork involved it's not just shares as a bonus or something sketchy.

If you want the money or otherwise dissatisfied with your compensation, bring it up. Otherwise it sounds like the kind of thing that could...raise eyebrows to say the least.

 

[glass99]

I think its entirely reasonable to ask for some documentation for the shares that you own. I can't see why that's even a rude question - it just seems like basic business practice. I would phrase an email like this:

"Dear Boss - As you may recall I was given some shares in the firm two years ago and was paid out a dividend the following year. I am meeting with my financial advisor at the end of the month and he was asking whether you could forward over the documentation so he can run some numbers, even if its a small amount."

 

[Sparweb]

Have you been given shares in lieu of a pay raise?
Have you been given shares in lieu of benefits?
Have you been given shares in lieu of other tangibles such as vacation allotment?
Did you change your behaviour after you were given these shares?

If not, then you've probably not lost anything, and for your efforts been given a nice compliment. If you have given up something, then I'd be worried if I were you. It doesn't sound legit. Corporate law probably varies widely from state to state, but my assumption is every shareholder is entitled to a certificate that attests to the number and class of shares that they own, and a copy of any shareholders' agreements that exist in the company. I doubt you have voting shares, based on what you've said so far. I also doubt that they are "preferred" shares, either. Making them, yeah, probably junk shares.

Is there a legal department? Talk to them and see if you can be given a copy of the shareholders' agreement, and your share certificates. If they resist, tell them that the owner has promised you shares and/or you were told you are already a shareholder. That should give you the right, if the claim is true. Depending on the lawyer's answer, you can be absolutely sure you are (because they give you documents) or just as certain you are not (pure bafflegab).

 

[geotechguy1]

Before you take any shares, try and get an idea for what your market salary is. Be careful you don't miss out on a 30% raise in exchange for a few k of bonuses /zero say in the business being run and handcuffs attaching you to it.

 

[OSUCivlEng]

I appreciate all the answers. I have done some checking on salaries, and I believe I am being compensated at or above the market for my years of experience, responsibility, etc. I have gotten a couple raises since I was told I was given the shares. I have not changed my behavior, nor have I taken a bad attitude towards certain people.

This is privately owned company, so this is private stock. I do like the idea of asking about a shareholder's agreement and share certificates. I am not sure how they would react to the financial advisor asking for documentation. The "dividends" had taxes withheld from them, which does not make them real dividends, but rather simply a bonus. I know for a fact that the other "owners" receiving actual dividends are cut a check with no taxes withheld, you are responsible for paying the taxes. That is more in line with a real dividend.

The thing that aggravates me is we had just won a large (for us) $10 million+ contract with a government agency who was in the midst of a massive expansion plan. There were about a dozen other firms who got similar contracts and I think there may have been some concern that companies were looking to hire. Looking back on it now, it seems more like a carrot to get me to stay. Especially since they told me it was retroactive to the beginning of the year after we were a couple months into the year.

The other thing is, given the market, I am constantly getting inquiries by other local firms interested in hiring me. Some of them are offering similar or higher salaries and some are also offering ownership. I could try to use that as leverage, but I think that we all know that odds are that will probably end up going badly for me.

 

[SWComposites]

do you have performance reviews with your management? that might be a good time to casually bring up the subject.
or just ask them straightforwardly about documentation, plan for future shares, etc. if they react badly to a simple question like that, well, that's all the info you need to at least start looking at other opportunities.
are there other engineers in the company in the same situation as you? can you discuss with them?

 

[glass99]

This is a simple paperwork issue, and not some high octane negotiation where you are asking for a raise or threatening to quit etc. Do you have an HR department or payroll person you can ask that's not your day to day boss? "Just shoot over the paperwork for my part of the ESOP when you get a minute".

Personally I feel as though our profession would generally be in better shape and paid better if technical engineers were more in tune with the business side, and also had some ownership skin in the game. Part of that is asking for what is yours.

 

[CWB1]

Being granted shares in ESOPs is very common, every industry from retail chains to manufacturing does this. Details vary, but they're generally less desirable than a traditional pay&benefits package bc you're accepting compensation in the form of a restricted-stock which management controls the price, timing, and other details of every sale, along with dividends which are rarely guaranteed. There are many ways to be disappointed or openly screwed, and outside of C-Corps they may also make you responsible for a portion of liabilities as well. Regardless, there's nothing free about ESOPs. Both the value of your shares and distributions are taxable income tho taxes on the value of shares is usually deferred until sold.

Personally, I address pay & benefits questions in a very direct manner up the chain via my supervisor. "I'm receiving X. I want Y," "I was promised X. When will I receive it," etc. If they make me happy I stay, otherwise I go.

 

[OSUCivlEng]

This is not an ESOP. I know people who have ESOPs at their employer. Odds are very good that the person running HR doesn't know anything about this.

I brought this up at my last performance review and received a blank stare. My direct supervisors have no ability to change this situation.

There is another person in the same situation as me, we have spoken about this. We are at a loss as what to do.

Maybe I didn't make this clear in the beginning, but the owners are not publicly known by the rest of the employees. No one even knows who all of the owners are except for the board of directors. I explained my situation to someone else who is an owner and has told me he received several distributions of shares. He knew I had been selected, but didn't know about the "equivalent shares".

 

[SWComposites]

to me this whole "the real owners are a secret" thing is a big red flag. how big is this company (# people)?

 

[Rabbit12]

CWB1 I disagree with your take on an ESOP. I work at an ESOP company. It's incredible. Engineers that start at my company out of college retire in their low 50's. VERY VERY few people stay here into their 60's. I go to job walks with competitors and every single one of those companies is represented by "old" guys that are clearly 15, 20 years older than the crew I'm with. Makes me appreciate what I have. I have just over 10 years left and will walk away with a livable retirement in my mid-50's.

Also, our share price is not set by management. It's determined by a 3rd party accounting firm. We get dividends 5 times a year while not guaranteed you'd have a mass exodus if they stopped happening.

 

[LittleInch]

The terms "owners" and "shareholders" seems to be interchangeable here?

It does look as though whoever told you you were getting "equivalent shares" was basically saying you would get a taxable bonus the same as if you actually had shares.

But the reality is you have NO SHARES.

If you did you would have a share certificate. I don't know about US Company Law but I'm pretty sure that's a legal requirement.

So next time you get an opportunity just ask about the employee shareholder system and when you will get any.

Normally tax people are all over ESOP type systems so that they don't become an non taxable alternative to salary or bonuses.

Like a few her have said though that private company shares are basically worthless and illiquid. Only if the company gets sold does it becomes "free money".

Remember - More details = better answers
Also: If you get a response it's polite to respond to it.

 

[glass99]

@LittleInch: I do not agree that shares in engineering firms are worthless, especially if the underlying cash flow is good. There are a number of private equity firms buying up smaller consulting engineering firms and rolling them into larger groups for eventual stock market listing. The size of firms they are willing to buy is surprisingly small (like a minimum of a ~5 person firm). And there is a large delta in the price/earnings ratio between a private and public company. ESOP plans typically run at a P/E of 3-5 and public firms are at 8-16 and the private equity guys paying about half way between those two values. But yes private firms are completely illiquid for years at a time.

 

[geotechguy1]

@glass99 - that's true but it also may not be sustainable. I believe that the private equity firms and the financial backers behind the "Pacman" engineering consultancies like WSP believe that the engineering market is headed for a consolidation ala accounting. The WSP CEO believes that where will be 4-5 500k employee engineering firms in 10-15 years. In the short term, that's good, but in the long term, we can expect regulatory capture to start preventing small firms from forming - the big companies will lobby for insurance requirements and licensing rules that can only be met by these mega-firms and the door will be closed.

 

[OSUCivlEng]

to me this whole "the real owners are a secret" thing is a big red flag. how big is this company (# people)?

It's about 225 people.

 

[LittleInch]

Glass 99,

I said basically worthless.... Didn't know PE firms were into this but its the lack of outside valuations and how to get your money out that makes a lot of them difficult to turn into hard cash.

Remember - More details = better answers
Also: If you get a response it's polite to respond to it.

 

[phamENG]

OSUCivlEng - if the President of your firm made this commitment to you, then you need to take it up with him/her and/or the board of directors (but I'd start with the one who talked to you). You work for a pretty big firm, so getting an appointment may not be too easy. But it's something that you need to chase down. There's something to be said for keeping your head down and enjoying your work...but for me, I wouldn't be able to if I know management cares so little for their employees.

From the sound of it, they made a commitment to make you a shareholder with restricted, non-voting shares of company stock. They said they didn't have them available at the time (fair enough - there's a finite number and perhaps they didn't want to or are not able to dilute them), so they gave you a bonus in lieu of shares. The commitment to give them to you was never rescinded. So, they owe them to you. If they now refuse or "forgot"...well it sounds like you need to "forget" about going to work for them and take a higher salary elsewhere.