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Understanding Employee Stock Ownership Plans (ESOP)

ESOPs are set up as trust funds and are used by companies of all sizes, including numerous large publicly traded corporations. Companies use ESOPs to keep participants focused on corporate performance and share price appreciation. It encourages participants to perform better as they are more motivated to who what’s best for the company as they are also shareholders.  

Upfront Costs and Distributions

These kinds of ownership is usually given to employees with no upfront costs.   In most cases employees are provided the assets over time; typically, employees earn an increasing proportion of shares for each year of their service in the company. When the employee finally retires from the company, their shares are bought back by the firm, and the amount accrued goes to the employee as a lump sum payment or equal periodic payments

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