Employee Stock Ownership Plans (ESOPs)

By Entrepreneur Staff

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Employee Stock Ownership Plans (ESOPs) Definition:

A trust set up by a company to allot some of its stock to its employees over time. Used as an employee incentive, the plan often provides tax benefits to the company.

Employee Stock Ownership Plans (ESOPs) are similar to profit-sharing plans and allow owners of privately held companies to share ownership with their employees. They are good ways to motivate employees and increase the distribution of company shares and create markets for them.

Technically, ESOPs are defined-contribution employee benefit plans that invest primarily in the stock of the employer company. As such, most ESOPs distribute the company's stock to employees as a benefit, rather than selling employees the shares. ESOPs are commonly used to give retiring owners a way to cash out all or part of their holdings without selling the entire company. But creating a market for shares of the company can also be used to raise funds for expansion. ESOPs are easy to set up and are used by thousands of employers.

More from Employee Benefits

Cafeteria Plan

An employee benefit arrangement allowed by IRS Code Section 125, under which employees are allowed to pay for certain employee benefits on a pre-tax rather than an after-tax basis.

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Compensation

In financial terms, the salary and wages you pay to your employees for the work they do. Other, nonfinancial forms of compensation can also be offered to attract and retain staff.

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Benefits

A product or service's customer-oriented strengths; statements of a valuable product or service feature, with an emphasis on what the customer gets from the products

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Bonus

A monetary payment made to an employee over and above their standard salary or compensation package

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