Employee stock ownership plan

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Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys stock on behalf of employees.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Employee Stock Ownership Plan

An employee benefit in which employees are issued or sold shares in the publicly-traded company for which they work after a certain number of days of employment. ESOPs are designed to give employees equity in the company to boost morale and thereby improve productivity. ESOPs receive various tax benefits, and may give employees a greater say in the election of the board of directors.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Employee Stock Ownership Plan (ESOP)

A qualified retirement plan in which employees receive shares of the common stock of the company for which they work and the company receives an investment tax credit. The purpose of this type of plan is to give employees a vested interest in the company, thereby providing them with an additional incentive toward greater productivity. See also leveraged ESOP.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Employee stock ownership plan (ESOP).

An ESOP is a trust to which a company contributes shares of newly issued stock, shares the company has held in reserve, or the cash to buy shares on the open market.

The shares go into individual accounts set up for employees who meet the plan's eligibility requirements.

An ESOP may be part of a 401(k) plan or separate from it. If it's linked, an employer's matching contribution may be shares added to the ESOP account rather than cash added to an investment account.

If you're part of an ESOP and you leave your job, you have the right to sell your shares on the open market if your employer is a public company.

If it's a privately held company, you have the right to sell them back at fair market value. The vast majority of ESOPs are offered by privately held companies.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
* Another option: The ESOP Association (www.esopassociation.org), which has an Illinois chapter.
Rob Schatz said, "With the rapidly increasing use of the employee stock ownership plan to facilitate the transfer of companies to their employees, it is important for corporate boards and ESOP trustees to understand the obligations that they owe to the employee owners of the business."
After we explain ESOPs to business owners contemplating a sale, we often get the following question from them: Why doesn't everybody do this?
In conclusion, although ESOPs are not the right ownership succession strategy for every business, every business owner should at least consider whether an ESOP might be their best strategy.
The net value of the ESOP's assets in 2010 was pegged at more than $7.3 million.
ESOPs are qualified retirement plans, so amounts allocated to a participant's account are not included in the participant's gross income in the year contributed.
Business owners sponsoring ESOPs may realize advantages, but there are drawbacks as well.
Another advantage of ESOPs is the liquidity and exit strategy they provide for owners.
The CCL provides that the Emirates Securities and Commodities Authority ("ESCA") will issue a Resolution on the "mechanism and conditions of implementation" of ESOPs. Whilst the Resolution has not yet been issued, we have had sight of it in draft form and anticipate that it will have legislative effect imminently.
In fact, while some would view an ESOP as a less diversified alternative to other retirement benefits, the Rutgers study shows that in the fringe-benefits arena, ESOPs are usually a net addition, rather than a substitution, for other wages and benefits.
S ESOPs, which are defined contribution retirement plans that allow employees to become owners, are increasingly popular in the US.
In India, ESOPs are specifically offered to middle and senior management or employees who have completed a certain tenure in the organization.