Employee Stock Ownership Plans (ESOPs)

Employee Stock Ownership Plans (ESOPs) are similar toprofit-sharing plans and allow owners of privately held companiesto share ownership with their employees. They are good ways tomotivate employees and increase the distribution of company sharesand create markets for them.

Technically, ESOPs are defined-contribution employee benefitplans that invest primarily in the stock of the employer company.As such, most ESOPs distribute the company’s stock to employees asa benefit, rather than selling employees the shares. ESOPs arecommonly used to give retiring owners a way to cash out all or partof their holdings without selling the entire company. But creatinga market for shares of the company can also be used to raise fundsfor expansion. ESOPs are easy to set up and are used by thousandsof employers.