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La Bourse  /  Volume V  /  Nº V.03  /  Workbook — the Gainshare employee

A woman in a soft knit sitting on a sofa, drinking from a cup held in both hands, pale window light.
Plate V.03 · Workbook — the Gainshare employeeThe Statement on the Kitchen Table.A share in the company arrives once a year as a number on a page. What that number is worth to the person holding it is a different number, and almost nobody has been shown how to compute it.

WORKBOOK — THE LUMINOUS GAINSHARE EMPLOYEE

Chapter V.03 · Ownership and the Worker

For the person on the inside of the arrangement — holding a stake, a share of a result, or both. This workbook is about reading your own position accurately, finding the rights nobody explained, and asking for what the arithmetic already says you are owed.

THE FOUR QUESTIONS YOU ARE OWED AN ANSWER TO

Before anything else, get these four answered in writing. Most people in employee-owned firms cannot answer more than two, and that is not their failing.

  1. Who paid for my stake? Did the company contribute it, did a trust borrow against future profit, or did it come out of my pay, my deferrals, or a raise I did not get?
  2. What is it worth, and who says so? Who values the shares, how often, and are they retained by the trustee or by management?
  3. When can I sell, and to whom? What is the put, what is the queue, and is there money behind it?
  4. What share of my total savings is this? Not the balance. The proportion.

The fourth is the one this chapter exists for, and it is the one nobody has ever computed for you.

PART ONE — DISCOVERY

Weeks 1–4: read your own position

Exercise 1.1 — Trace your own line (2 hours)

Take your most recent statement and the plan summary, and write the answers.

  1. What exactly is in my account, in shares and in value?
  2. What was the share price at the last three valuations, and who performed them?
  3. What did I contribute, in cash or in foregone pay, over the same period?
  4. What happens if I leave — voluntarily, involuntarily, at retirement?
  5. When is the company obliged to buy my shares back, and in how many instalments?

Question five decides whether your stake is money or a promise. In an American ESOP the obligation comes from the §409(h) put option; in a trust arrangement it comes from the trust deed. Find the clause. Read it. Note how many years the payment can be spread over, because a balance paid over five years is worth noticeably less than the same balance paid on the day.

Exercise 1.2 — Compute your concentration (45 minutes)

  w  =  employer stock  /  (employer stock + every other retirement saving)

Include everything: the 401(k) or workplace pension, an IRA or SIPP, any previous employer's plan. Exclude your home and your emergency cash — this is about retirement savings.

Write the number down. If it is above 20 percent, the rest of this workbook is the most valuable document you will read this year. If it is above 50 percent, do Exercise 3.1 this month rather than in week nine.

Exercise 1.3 — The appreciative team conversation (45 minutes)

Run this with your team, in these words:

"Think of a time here when something went unusually well — not the biggest win, the one that surprised you. What were the conditions? What did we do that we do not normally do?"

Take notes on conditions, not outcomes. Then ask the second question, which is the one the evidence cares about: did we decide how that work was done, or were we only sharing the result? Doucouliagos measured a say in the work outperforming a share of the result by two to three and a half times. You are testing a published finding against your own floor.

PART TWO — THE ARITHMETIC

Weeks 5–8: price what you hold

Exercise 2.1 — Your swap value (90 minutes)

This is the calculation nobody has ever done for you, and it takes ten minutes once you have the inputs.

  σ_ε²  =  σ_c²  −  β² σ_m²            the risk you carry for nothing
  R     =  exp( −γ · w² · σ_ε² · T / 2 )
  value of $1 of stock  =  1 − (1 − R) / w

Use σ_c = 0.40 and σ_m = 0.17 unless you have better, γ = 2, and T = the years until you can actually get the money out. At the chapter's median — w = 63.4 percent, ten years — a dollar of stock is worth 35.4 cents, and a $130,330 account is worth about $46,160 in diversified terms.

Now write one sentence: my statement says ___, and to me it is worth about ___.

This is not bad news. If the company gave you the stake, the alternative was nothing and every cent of that is money you would not otherwise have. It is only bad news if you bought it.

Exercise 2.2 — Your hurdle rate (30 minutes)

  λ*  =  γ · w · σ_ε² / 2

That is how much your employer's shares must beat a broad index by, every year, for your concentration to be worth it. At 20 percent it is 2.62 points; at 35 percent, 4.59; at 63 percent, 8.31.

Then ask the honest question: does my company beat the market by that much, every year, for ten years? The best published estimates of the employee ownership effect are a correlation of 0.04 with firm performance and a one-time productivity step of 4 to 7 percent. Neither converts into eight points of sustained annual excess return.

Exercise 2.3 — Your ceiling, and the gap (30 minutes)

  w*  =  2λ / (γ · σ_ε²)

Choose the premium you actually believe: 1.0 points gives a ceiling of 7.6 percent, 1.5 gives 11.4, 2.0 gives 15.3. Then:

  the gap  =  your stake  −  w* × (your total retirement savings)

Write the gap down in money. That is the amount that should move, over time, into something diversified — through future contributions and the election, never through a panic sale.

Exercise 2.4 — The honest negative, about yourself (30 minutes)

Write the strongest case against reducing your concentration. It exists: you know this company better than any analyst; you believe in it; the shares have done well; selling feels like a vote of no confidence and might be noticed.

Then answer it in one line each. Notice that every one of those reasons is about information and loyalty, and none of them is about the fact that the market does not pay you for firm-specific risk. That asymmetry is the whole argument, and no amount of inside knowledge changes it.

PART THREE — DESIGN

Weeks 9–12: exercise the rights you already have

Exercise 3.1 — Find your election (2 hours, then act)

If you are in an American ESOP: IRC §401(a)(28)(B) gives you, at age 55 with ten years of participation, the right to diversify up to 25 percent of your post-1986 account across a six-year window, rising to 50 percent cumulative in the sixth year.

For the chapter's participant this is worth 32.1 cents on the dollar — $41,867 on a $130,330 account — and it costs nothing. At a beta of 1 it surrenders no expected return, because the expected return was never the compensation for the risk it removes.

Do this, in order:

  1. Ask your plan administrator, in writing: am I a qualified participant under §401(a)(28)(B), and if not, when will I be?
  2. Ask what the plan's three diversification methods are and which applies.
  3. Ask for the election form and the deadline, and put the deadline in your calendar for every year of the window, not just the first.
  4. If you are outside the United States, ask the equivalent question: what is the mechanism by which I can reduce this position without leaving?

If nobody can answer, that is the finding, and it is the most valuable thing you will produce this quarter — for you and for everyone on your floor.

Exercise 3.2 — Stop buying it (this month)

Check whether any of these is true of you, and end the ones that are:

Each of these converts a diversified dollar into a stake worth 35 to 58 cents to you. A gifted stake is a gift. A purchased stake is a trade you are losing. The Enron employees were not victims of an ESOP; they were victims of company stock inside a 401(k).

Exercise 3.3 — The proposal (one page)

Take one page to your works council, employee director, trustee representative or line manager. Four parts:

  1. The finding. The median concentration on our floor is __ percent.
  2. The arithmetic. At that concentration our shares must beat the index by __ points a year. Here is the calculation.
  3. The ask, in three parts. Publish the plan's diversification take-up. Pay the match in cash. Put the median concentration on the standing pack.
  4. What it costs the company. Almost nothing, and it removes a liability nobody has priced.

Nothing in that page is adversarial. You are handing the company a risk report it does not have, about a risk it created without meaning to.

PART FOUR — DESTINY AND DELIGHT

Making it hold

Exercise 4.1 — Into the standing review (one conversation)

Ask for two numbers on the regular employee-communications cycle: median participant concentration, and the funded ratio of the repurchase reserve. Anything reported regularly persists; anything reported by exception does not.

Exercise 4.2 — Watch the repurchase (ongoing, 20 minutes a quarter)

Your stake is only worth what the company can pay when you want it. Track:

If repurchases are being spread over more instalments than last year, that is the first sign, and you will see it before the board does.

Exercise 4.3 — Ask for the voice, not only the share (this quarter)

The evidence says a say in the work outperforms a share of the result. So ask for the thing that is cheaper and worth more:

Exercise 4.4 — Delight, honestly (ongoing)

The particular pleasure here is not pride of ownership. It is the disappearance of a specific suspicion: when you find forty minutes in a shift, the question who gets that has an answer everybody already knows, so nobody spends the afternoon being careful.

And once a year, a piece of paper with your name on it and a number that got larger because of something you can point at. Not a verdict on you — a record of the place.

Write one sentence: the part of this I look forward to is ___.

KNOW YOUR SCHEME — A CHECKLIST

Tick what you can answer from a document rather than from memory.

Fewer than six ticks is the ordinary result. It is also the agenda.

THE CONVERSATION, SCRIPTED

When you raise this, the shape that works is not a complaint. It is a number followed by an offer.

"I've been doing some arithmetic on my own account. About __ percent of my retirement savings is in our shares. At that concentration, the standard finance calculation says our shares would have to beat a broad index by about __ points a year for that to be the right holding for me — and I don't think anyone would claim that.

I'm not asking to sell. I'd like three things that cost the company almost nothing: the match paid in cash rather than shares, the diversification election explained to everyone who qualifies, and the median concentration reported once a year. I think we'd find we're carrying a risk on people's behalf that nobody intended."

Bring the calculation on one page. The sentence that changes the room is not the request. It is the moment somebody checks your arithmetic and it holds.

APPRECIATIVE QUESTIONS FOR YOUR TEAM

  1. When has someone here improved something without first checking whether they would be the one to benefit? What made that possible?
  2. Which do we have more of on this floor — a say in how the work is done, or a share in the result? What would it take to have more of the scarcer one?
  3. What does a good retirement from this company look like, in detail, and what would have to be true five years out for it to happen?
  4. What is the first sign we would see that the promise behind our shares was getting harder to keep, and which of us would notice it first?