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What is an ESOP and How an ESOP Can Benefit the Company and Employees?

An ESOP is a stock equity plan for employees that can include stock options, stock purchase, phantom stock or a combination of alternatives. Either key personnel or all employees can be offered shares in the company.

ESOPs enable employees to acquire ownership in a company from 1% to 100%.

ESOPs can provide the foundation for a high performance company by creating an ownership mentality, which improves employee motivation, productivity and profitability.

ESOPs allow employee owners to share in the company’s success through increased share value, which can be sheltered and allowed to grow tax-free. Share investments also have the potential for capital gains that other fixed income investments do not possess.

An effective ESOP allows the company to get long-term commitment from employees by aligning long-term compensation to the risk of the business. An ESOP is effective because the company’s success is tied to the efforts of the employees. Employees with a stake in their company’s success will take on more responsibility and commitment and treat the company as their own.

An ESOP can also:

• Recruit highly skilled individuals to your organization
• Retain key employees thus reducing turnover and training costs
• Maximize commitment to long-term corporate goals
• Profitably manage a fast growing company
• Provide employees with non-cash compensation
• Revitalize existing incentive plans
• Assist with succession planning