Employee Stock Ownership Plan (ESOP) - Explained
What is an Employee Stock Option Plan?
Written by Jason Gordon
Updated at August 5th, 2023
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What is an Employee Stock Ownership Plan (ESOP)?
An employee stock ownership plan (ESOP) is an employee benefit scheme that gives ownership interest to the employees of a company. It can also be called a corporate strategy whereby the company grants ownership to its employees. ESOP benefit both the company and the employees in terms of tax advantages.
Basically, some companies use ESOP as a corporate strategy to level the wide gap between shareholders interest and employees interest. Some companies also facilitate ownership interests for their employees to serve as incentive or compensation for the work they have performed. ESOP signifies the ownership interest of a company held by employees of the company.
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How to Use an Employee Stock Ownership Plan - ESOP
Corporate organizations use the employee stock ownership plan (ESOP) as a tool to achieving specific goals. The benefit scheme gives employees similar rights to the right of shareholders of the company which in turn stimulates corporate performance. Organizations also minimize conflicts with the use of ESOP, employees act in position of shareholders to enhance corporate values and control in the organization.
ESOP can also be used for incentive or compensation purposes, a company can reserve some stocks or shares which are protected and continue to grow till some employees retire or resigns from the organization. At the point of retirement or resignation, the company purchases the vested stocks from the retiring or resigning worker. The benefits of the vested stocks are given to the retiree either as a lump of sum or series of payment.
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