Effective employee share valuation mechanisms?

Pointers please to effective share valuation/payment mechanisms for departing employee shareholders

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Before going to lawyers to discuss/draft the revised articles I am hoping to 'read around' potential solutions and am hoping that the AW community can point me to companies that have considered this and found a solution (I can look at the solution in those companies articles - unfortunately not if they are 'hidden' in shareholder agreements).

Background:

  • The company (for reasons not relevant here) is going to end up with about a third of the shares in an (existing) Employee trust.
  • Key staff will be allocated shares from the Trust.
  • Unless the whole of the company is sold the 'employee' shares may only be sold back to the trust, the company or (with pre-emption) other holders of that class of share.
  • Business does not have a grow/flog/move-on strategy, so it is highly likely that employee shareholders will retire, move on to other roles elsewhere etc.
  • There will be good leaver (dead/retire), bad leaver (dishonest, sacked) and 'intermediate leaver' clauses (e.g. moving onto new job)

The Challenge:

  • How to value the shares of good/intermediate leaver?
  • How to avoid somebody 'in the know' jumping ship at a high valuation to the detriment of those who remain?
  • How to handle it if the trust/company doesn't have enough cash at the time to pay for the shares?

Ideas so far:

  • Valuation - by the Board with an 'expert mechanism' - I like ones where either side can call for an expert in a dispute but the loser pays. Valuation is future weighted (past is no guarantee of the future etc.)
  • Payment - payment made current year and next 2 based on performance during those years (implied is that there is an ebitda multiple in the valuation)
  • Inability to pay - switch to loan note at bank of England base rate, but right to dividends if any declared.

Is is this a solved problem - if so, I would be grateful for any pointers to company articles of association or any prior discussions (AW search I tried found nothing).

Thanks in advance.

Phil

 

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By philrob
23rd Sep 2020 10:26

Adding to this as I find out things - maybe it will be a resource for others in this situation.

A good summary of valuation mechanisms (written 2016) is at employee share ownership:
https://employeeownership.co.uk/news/top-tips-business-share-scheme-valu...

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