Effective Methods for Communicating Financial Information

1. Effective Methodsfor CommunicatingFinancial Information The ESOP Association 17th Annual Multi-State ESOP Conference September 20, 2012 Alex Moss | Praxis Consulting Group Jim Stefano | Synergy Global Solutions

2. The Big Picture:Alignment Drives Performance Strategy High Performance Culture Leadership Multi State ESOP Conference | Communicating Financial Information

3. Agenda for Today • Part 1: Why Open the Books? • What company financial information do / should you share with employee-owners? Why? • Part 2: How Can You Do It Effectively? • Case study • Sample Exercises Multi State ESOP Conference | Communicating Financial Information

4. What are Your Burning Issues? • ? Multi State ESOP Conference | Communicating Financial Information

5. Part 1: Why Share Financials? • Legal requirements • Research: employee ownership and company performance • Your company goals Multi State ESOP Conference | Communicating Financial Information

6. ESOP Governance…and Opportunity ESOP Committee: Promote Ownership Shareholders Individual Owners ESOP Trustees are represented by select elect Board of Directors ESOP Participants appoint and oversee CEO / President when meet eligibility requirements hire and oversee Leadership Team hire and oversee Employees Multi State ESOP Conference | Communicating Financial Information

7. Praxis’ Employee OwnershipPerformance CycleTM Multi State ESOP Conference | Communicating Financial Information

8. We Know It Works: Sample Research Findings • Dramatically lower job loss during Great Recession: ~4:1 • Improved worker productivity • Increased sales growth rate • Reduced employee turnover • Substantial individual account balances • Better retirement benefits: ESOP + other Multi State ESOP Conference | Communicating Financial Information

9. It Takes More Than Just Stock Multi State ESOP Conference | Communicating Financial Information

10. Discussion Question 1:Link to Your Strategic Goals • What are your strategic business objectives? • What impact do you expect ownership to have in improving your company? • How do you want employee owners to act, based on their increasing business knowledge? • What information do you need employee owners to understand? Why? Multi State ESOP Conference | Communicating Financial Information

11. Discussion Question 2:Current Status • How well do your employee owners understand the business and the financials? • What impact has this had on your business so far? • What works best today: think about… • A specific company leader who “did it right” • A specific employee-owner who demonstrated that they “get it” • Impact of employee initiatives on performance – operating metrics, profitability, stock value Multi State ESOP Conference | Communicating Financial Information

12. Discussion Question 3:Future Vision • Imagine that it’s Fall 2015, and you are back at this conference sharing your achievements over the past couple years • What have you accomplished? • Leadership initiatives • Employee actions • The Gap: what do you need to do more of in your company to achieve this vision? Multi State ESOP Conference | Communicating Financial Information

13. Case Study: Synergy Global Solutions Multi State ESOP Conference | Communicating Financial Information

14. Synergy Global Solutions Overview • Corporate Headquartered in Victor NY. • Sales Offices are in Buffalo, Rochester, Syracuse and Albany regions • Operations Center located in Buffalo, NY • 130 + Employees • 100% Employee owned (ESOP) • Synergy Global Solutions has been providing Managed Information Services for over 41 years. • Synergy began as an Online Service Bureau providing a host of application services in 1971. • Our 2012 Annual Sales were $56 million. • Our managed service business has grown to include providing network monitoring and help desk services. • Premier provider of IT Services to a wide range of customers. Multi State ESOP Conference | Communicating Financial Information

15. Sample ESOP Finance Subcommittee Meeting • Note: during the session, we showed actual data from a recent Synergy meeting. This data is company confidential and is not included here. • Please contact Jim Stefano with any follow up questions on this element of the presentation. Multi State ESOP Conference | Communicating Financial Information

16. Questions: Today • What are the key themes that you share? • Why do you choose to share this info (vs. less detail, more detail, or different info)? • How much of this info is shared with the workforce as a whole? How do you think about & manage confidentiality? • What do your people understand most easily, where have they struggled (if at all)? • What training and support do you provide? • How do you rotate new members onto the committee? Multi State ESOP Conference | Communicating Financial Information

17. Questions: Past & Future • How has it evolved? • If we attended a subcommittee meeting 5 years ago, what would have been different? • What changes did you make or see along the way? • What’s your future vision? • What will be the same / different 5 years from now? Why? • What challenges do you anticipate along the way, among shop-floor employees, managers, or customers? Multi State ESOP Conference | Communicating Financial Information

18. Appendix: How?What are the Pieces? • Context • Setup • Initial planning • Initial education: building a knowledge foundation • Operational implementation • “Games” and other ongoing tools • Process improvement initiatives • Evaluation and continuous improvement • Future adjustments Multi State ESOP Conference | Communicating Financial Information

19. Context: It’s a Whole Process • Foundation: Leadership vision for how ownership should contribute to achieving strategic business objectives • Making it work: 4 categories of activities • Training, initial and ongoing – teach the rules • Communication – show the score • Incentives – share the win • Participation mechanisms – let ‘em play Multi State ESOP Conference | Communicating Financial Information

20. Initial Education:Sample Goals • To engage employees in learning about our business • To build awareness of • The connection between your actions, the outcomes for our company, and your rewards • Business and financial terms, so that you can be effective consumers of financial information • Pay for performance, and the stock component of this in particular • How the ESOP works, especially in relation to other incentives and stock plans • Balance between social responsibility and business objectives • To create readiness and knowledge necessary for future implementation Multi State ESOP Conference | Communicating Financial Information

21. Common Approaches • Focus on financial statements • Start w/ dollar bill, carve up • Profit & Loss, Balance Sheet, Cash Flow • Case studies of where the numbers come from and how the statements relate to each other • Examples • Companies • Commercial product example: the Accounting Game / Lemonade Stand Multi State ESOP Conference | Communicating Financial Information

22. Praxis Template Outline • Initially: 3 sessions, 2½ hours each, 1x / month • Session 1: Our Business, and How We Make Money • Session 2: How You Benefit through Profit Sharing, Ownership, Retirement Plans, Other Incentives • Session 3: Factors That Drive Our Stock Value, and What You Can Do To Affect It • Future: additional sessions and continuing follow-up at departmental and corporate levels Multi State ESOP Conference | Communicating Financial Information

23. Agenda for Session 1 • Income & expenses: the personal view • Our business: the flow • Our Profit & Loss statement (P&L): tracking whether and how we make money • “What if?” scenarios: the impact of changes on our profits and stock value Multi State ESOP Conference | Communicating Financial Information

24. Exercise 1:Personal Income & Expenses • Income • Expenses Multi State ESOP Conference | Communicating Financial Information

25. Exercise 1:Personal Income & Expenses • Two rounds • Round 1: Personal, your home budget • Round 2: Our Company • Questions • Where does the money come from? • Where does it go? • If there’s coming in than going out: what can you do with it, and how/when will you get it back? • If not: what can you do about it? • Who decides, and why? • How does this relate to “value” and “wealth”? Multi State ESOP Conference | Communicating Financial Information

26. Exercise 2:The Flow of the Business • Your basic business process: what are the steps? • The exercise • List functions & attach employee names • Compare notes, pick 1 company • [Make photos, big enough to handle: ~ 11x17] • Put them in order • Relate to the P&L Multi State ESOP Conference | Communicating Financial Information

27. Other Exercises in Session 1 • Product P&L: big enough to count, small enough to understand • Whole company P&L: sum of the parts • “What if” scenarios: effect of operating improvements on the bottom line, hook to ongoing “games” Multi State ESOP Conference | Communicating Financial Information

28. Agenda for Session 2 • ESOP & Benefit Sharing Overview: create it, share it • How: Profit Sharing, Ownership, Retirement Plans, and Other Incentives • Rules: how they work • Valuation: what all these plans could be worth to you Multi State ESOP Conference | Communicating Financial Information

29. Agenda for Session 3 • Our business strategy • Our value proposition: why people buy products / services from us • Our Strategic Plan: where we are headed • Our stock value • How the market / appraiser values our stock • How you affect the value • Where to from here • What we want you to do: operating challenges & opportunities • What other information you will receive: future education & communications • Wrap up & graduation Multi State ESOP Conference | Communicating Financial Information

30. Other Sample Exercises • Constructing the Balance Sheet • Developing specific performance improvement targets • Linking performance targets to the financial statements to individual rewards • Reinvesting profits: Board of Directors exercise • Profits, book value and market value • Affect of investments, acquisitions, other growth strategies – long term risk & reward • Future value illustrations – for ESOP, Profit Sharing and/or other contingent benefits Multi State ESOP Conference | Communicating Financial Information

31. Keeping the Process Alive • Core education/training program • Targeted topics for leadership and/or “local” issues • More big picture – our business strategy, and why • More details – unit performance & improvement goals • Repeat for new employees • Adjust for new business / economic realities • Regular communication of performance issues and results • Participation structures so employees can use new information and knowledge to improve performance • Integration with other short and mid-term incentives • Follow up: “Getting Your Company Ready for an ESOP: the Ownership Culture Perspective” • www.praxisCG.com/publications_esop_get_ready.htm Multi State ESOP Conference | Communicating Financial Information

32. Effective implementation requires: • Accountability: whose job is it to oversee / insure success? • Development: who will design it? • Trainers: who will teach it? How will they learn? • Reinforcement: link to ongoing distribution of key financial data • Repetition: how often? • Revision / continuous improvement: incorporating new learning and keeping it fresh over time Multi State ESOP Conference | Communicating Financial Information

33. Praxis’ Principles for EffectiveBusiness Literacy Development • Simple • Concrete • Interactive • Enjoyable • Strategically integrated • Developmental • Just-in-time Multi State ESOP Conference | Communicating Financial Information

34. Discussion / Q&A • Any unanswered questions? • What makes this hard? • Other best practices in your companies? Multi State ESOP Conference | Communicating Financial Information

35. Contact Info Jim Stefano President Synergy Global Solutions Victor, NY 585.758.7250 jstefano@synergygs.com www.synergygs.com Alex Moss Principal Praxis Consulting Group Philadelphia, PA 215.753.0303 alex@praxiscg.com www.praxiscg.com Multi State ESOP Conference | Communicating Financial Information