Employee Stock Ownership Plan

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Definition

Employee Stock Ownership Plan (ESOP) is a means of raising financing (or saving costs) by offering shares of company stock to employees. These plans are typically considered a contribution to the employee and are offered for many different reasons.In terms of financing, benefits of offering an ESOP to employees is that it allows business owners to offer equity in the company in exchange for, in most cases, reduced salary. Generally full time employees, over 21 years of age, with 1 year or more of service are included in these plans. In some cases, employees can buy stock directly. Other than monetary advantages for the business owner, offering ESOPs to employees has the added benefit of promoting employees to take a vested interest in the company and its success. This can have positive effects on employee motivation and performance.