When uncertainty hits, employees don’t always sit tight. They cash out.
That reality — people wanting their money when headlines turn ugly — is one factor behind a key accounting advisory group’s decision to launch a closer look at Employee Stock Ownership Plan (ESOP) buybacks, after lenders and surety firms pressed for clearer, more consistent disclosure of repurchase obligations.
At a March 3, 2026 meeting, the Financial Accounting Standards Board’s Private Company Council (PCC) agreed to put ESOP repurchase obligations on a research track and to schedule an “ESOP 101” education session, after hearing that existing disclosures don’t always give a clear, consistent picture of how big the buyback demand could become — or when it could hit.
“It really plays a lot of human emotion,” said Robert Messer, a partner at BR Messer and a former bank CFO and chief risk officer. “Most human beings do not call in good times,” he told the council. “They call at times of uncertainty…or when there’s fear going on.”
In practical terms, Messer said, that means ESOP buybacks can spike when a company is already under stress — not when business is booming.
The Basic ESOP Issue: ‘When Workers Cash Out’
In many employee stock ownership plans (ESOPs), workers in private companies get company stock that isn’t easily sold on an open market. So employers are required to give participants a “put option” — the right to require the company to buy back those shares at fair value.
That buyback promise is called a repurchase obligation, and it can become a major call on cash if a large group of employees retires or leaves around the same time.
FASB staff said the issue has come up repeatedly from users of private-company financial statements in recent months. But there was a twist: when FASB asked a broader group what issues should be prioritized, most respondents rated ESOP repurchase obligation disclosures as a low priority — even as lenders, sureties, and construction-focused practitioners kept calling it a top concern.
What the Rules Say Now — and What Lenders are Still Not Seeing
Under current U.S. GAAP, an ESOP sponsor must disclose the existence and nature of any repurchase obligation, including the fair value of shares allocated to participants that are subject to repurchase as of the balance-sheet date. Private-company ESOP sponsors generally do not have to record the repurchase obligation as a liability on the balance sheet.
There’s also a public-versus-private split in how “in your face” this risk is. Staff noted that public companies are pushed to show the biggest potential ESOP buyback hit more upfront, rather than leaving it buried in the notes. Private companies typically don’t show it the same way — which is part of why lenders and sureties say comparisons can be tough.
Messer told the PCC he sees “two levels of risk”: outsiders may not understand the claim on a company’s equity, and “a worse thing” is that some owners and managers don’t understand it either — “the bomb that they’re sitting on,” as he put it.
He also said disclosures are uneven. “They are inconsistently prepared,” Messer said. “It’s not always present…they’re not consistent.”
Credit providers backed that up. David Hoagland, an executive credit officer at U.S. Bank, said lenders “struggle with some of these obligations and how to treat that,” and argued “the more disclosure the better.” With more detail, he said, lenders can make their own assumptions and stress-test what buybacks could do to a company’s ability to pay.
The Fight Over “Better Disclosure”: Useful Warning vs. Guesswork
The meeting also revealed a familiar tension: readers want a clearer look at future cash demands — but preparing forward-looking numbers can turn into educated guesswork.
One idea floating around is a five-year forward table of expected repurchase payments. But Bradley Hendricks, an associate professor at UNC’s Kenan-Flagler Business School, questioned how a company could build such a table in a reliable way. “I don’t understand how you would create that table,” he said, noting payouts depend on who leaves, payment elections, and future share price — “are we going to ask them to project five years share price in the future?”
Katherine Curtis, an audit partner at Grant Thornton, said she worries a five-year schedule could be stuffed with estimates and still fail to be “decision useful information,” given the uncertainty.
FASB member Christine Botosan urged the group not to get stuck trying to forecast share prices. If fair value at the balance-sheet date is already required, she said, the harder question is timing: “It comes down to when is that going to have to be paid.” She floated alternatives like disclosing observable triggers — such as upcoming retirements — or providing a five-year lookback of what has actually been paid out.
FASB Vice Chair Hillary Salo cautioned that changing balance-sheet presentation toward “temporary equity” could trigger broader questions about why ESOP-related equity should be treated differently from any other equity instrument with redemption features.
What Happens Next
No new rule came out of the March 3 meeting. But PCC Chair Jere Shawver said the group’s direction was clear: “The consensus is we would like more research done and we also would like more education.”
For workers in ESOP companies, the stakes are simple: cashing out is part of the deal. The question the PCC is now studying is whether the warnings around that cash-out moment — especially when fear is in the air — are clear enough for everyone relying on the company’s numbers.
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