Five Reasons Finalized Adequate Consideration Regulations Matter

Benefits and executive compensation partner Rick Pearl presented at the TEA National 2024 Conference.

The presentation, “Five Reasons Finalized Adequate Consideration Regulations Matter,” covered the top five reasons why finalizing adequate consideration regulations is important for all ESOP transactions. When a company establishes an ESOP, it must ensure the price paid by the ESOP for its stock is fair to the ESOP, which is referred to as “adequate consideration”. Various stakeholders, led by the ESOP Association, have expressed concerns over proposed (yet never finalized) regulations on what constitutes adequate consideration in an ESOP transaction. A clear standard for defining adequate consideration would create a uniform, transparent standard governing the process by which parties to ESOP transactions can establish a company’s fair market value. This is crucial to ensure ESOPs do not overpay for employer stock.