FAQ
ESOP Governance FAQs
What is an ESOP?
An employee stock ownership plan (ESOP) is a qualified retirement plan that holds company stock in a trust for the benefit of employees. Employees receive allocations of shares over time and receive the value of their accounts after leaving the company or retiring, subject to plan terms.
Who governs an ESOP company?
An ESOP company is governed by its board of directors, like any corporation. The ESOP trustee votes the shares held by the plan, which usually includes electing directors.
Read: What Is an ESOP Board of Directors? →What does an ESOP board do?
It oversees management, strategy, financial performance, risk and succession, and approves major decisions — the same core functions as any corporate board — while working within the ESOP's ownership structure.
What does an ESOP trustee do?
The trustee acts on behalf of the ESOP as a shareholder, votes the plan's shares and oversees matters such as the annual valuation, with fiduciary duties under ERISA to plan participants.
Read: ESOP Trustee vs. Board of Directors →Does an ESOP need an independent director?
There is generally no legal requirement for a private ESOP company to have independent directors, but many companies add them to strengthen oversight, manage conflicts and bring outside experience.
What is an outside director?
An outside director is a board member who is not an employee of the company. An outside director may still have relationships — such as serving as the company's attorney — that mean they are not fully independent.
What is an independent director?
An independent director is not part of management and has no material family, business or financial relationship with the company that could compromise objective judgment.
Read: What Does an Independent Director Do? →How do ESOP companies find directors?
Common sources include professional networks, advisors, industry associations, director networks and executive search. The process should begin with a clear view of what experience the board needs.
Read: How to Find an Independent Director →Can a CEO serve on an ESOP board?
Yes. It is common for the CEO to serve on the board of an ESOP company. Many governance practitioners recommend balancing management directors with independent directors, particularly for CEO evaluation and compensation.
Do ESOP directors have fiduciary duties?
Directors owe duties to the corporation under state law. Directors may also have ERISA fiduciary considerations when they appoint or monitor the ESOP trustee or act in plan-related roles. Companies should consult qualified ESOP counsel.
How much do ESOP directors get paid?
Director compensation varies widely with company size, complexity, time commitment and committee roles. ESOPGov does not publish compensation figures without reliable, sourced data; companies commonly benchmark against peer private companies.
Do you need ESOP experience to serve on an ESOP board?
No. Prior ESOP experience is valuable but not required. Operating, financial, industry and governance experience are often more important.
Read: Do ESOP Directors Need Prior ESOP Experience? →How often do ESOP boards meet?
Many ESOP boards meet quarterly, with additional committee meetings and calls as needed. Frequency depends on the company's size, complexity and circumstances.
What should an ESOP look for in a director?
Relevant operating or financial experience tied to the company's strategy, sound judgment, independence, an understanding of the difference between oversight and management, and genuine interest in employee ownership.
Is there a fee to submit a board search to ESOPGov?
No. There is no fee to submit a board search. Submitting an inquiry does not obligate you to anything.
Will my company's identity be kept confidential?
Yes. Company name is optional on our inquiry form, searches are never publicly posted, and ESOPGov does not publish client lists or identify companies conducting searches.
Discuss Your Board Needs
Tell us what experience your board may need. We'll confidentially review your request and contact you to discuss potential board candidates.
Confidential • Independent • No fee to submit a search