Some comments on the U.S. Sugar story in The New York Times

I think I have calmed down some so I am going to throw a couple of comments out there. Of course, it is hard to comment since I know very little of the actual facts of this case. But here I go anyway…

The story references a few participants – for example, Randy Smith cashed out of the ESOP with $90,000.  Mr. McCorvey and his wife had been receiving $7,000 in dividends annually from the ESOP.

So my first question is whether these participants would have had similar balances in another retirement plan if the ESOP had not been in place? I don’t know the answer but will refer you to a recent study of the wealth and income consequences of ESOPs - This study, carried out by three leading researchers in the field, shows that employees are significantly better compensated in ESOP companies than are employees in other companies. The study matched up 102 ESOP companies with 499 companies that were comparable in terms of industrial classification and employment size. The median hourly wage in the ESOP companies was 4% to 18% higher than the median hourly wage in the comparison companies, depending on the wage level. The average value of all retirement benefits in ESOP companies was equal to $32,213, with an average value in the comparison companies of about $12,735.

My second question relates to the offers to sell the company – again, I don’t know all of the facts but let’s just assume that the participants did get a chance to vote on those offers (by the way, why should they get the chance to vote on whether or not to sell shares of an investment held in a retirement plan. The managers of the mutual funds in my 401(k) plan do not allow me to vote on whether they should sell a particular investment.) But if they did have the chance to vote, would they really have voted yes? I assume that the reason that the offer price was higher than the current appraised price is that it was a strategic buyer and the likely result would have been at least some job cuts and other cost savings to justify that higher price. Would the employees have been more concerned about their jobs when casting that vote? Of course, now with 20/20 hindsight, they feel that they clearly would have voted to sell but I wonder if they really would have done so at the time.