Employee Stock Ownership Plan.

A trust established by acorporate which acts as a tax-qualified, defined-contributionretirement plan by making the corporation's employeespartial owners. contributions are made by the sponsoring employer, and can grow tax-deferred, just as with an IRA or 401(k). But unlike other retirement plans, the contributions must be invested in the company's stock. The benefits for the company include increased cash flow, tax savings, and increased productivity from highly motivated workers. The main benefit for the employees is the ability to share in the company's success. Due to the tax benefits, the administration of ESOPs is regulated, and numerousrestrictions apply. also called stock purchase plan.

An employee share ownership plan (or "stock ownership", abbreviated to "ESOP") is the practice of companies giving staff members shares in their company as part of their salary. An Employee Share Option Plan (ESOP) is a defined contribution employee benefit plan that allows employees to become owners of stock in the company they work for. It is an equity based deferred compensation plan. Under the ESOP plan, companies provide their employees the opportunity to acquire the company's shares at a reduced price over a period of time. 1. Direct purchase plans simply allow employees to buy shares in the company with their own, usually after-tax, money. In the U.S. and several foreign countries, there are special taxqualified plans, however, that allow employees to buy stock either at a discount or with matching shares from the company. For instance, in the U.S., employees can put aside aftertax pay over some period of time (typically 612 months) then use the accumulated funds to buy shares at up to a 15% discount at either the price at the time of purchase or the time when they started putting aside the money, whichever is lower. In the U.K. employee purchases can be matched directly by the company. 2. In the U.S., the most important kind of employee ownership is an ESOP (employee stock ownership plan), a kind of employee benefit plan under U.S. retirement law. ESOPs were [2] given a specific statutory framework in 1974. Like other tax-qualified deferred compensation plans, they must not discriminate in their operations in favor of highly compensated employees, officers, or owners. In an ESOP, a company sets up an employee benefit trust, which it funds by contributing cash to buy company stock, contributing shares directly, or having the trust borrow money to buy stock, with the company making contributions to the plan to enable it to repay the loan. Generally, at least all full-time employees with a year or more of service are in the plan. 3. Stock options give employees the right to buy a number of shares at a price fixed at grant for a defined number of years into the future. Options, and all the plans listed below, can be given to any employee under whatever rules the company creates, with limited exceptions in various countries.
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4. Restricted stock and its close relative restricted stock units give employees the right to acquire or receive shares, by gift or purchase, once certain restrictions, such as working a certain number of years or meeting a performance target, are met. 5. Phantom stock pays a future cash bonus equal to the value of a certain number of shares. 6. Stock appreciation rights provide the right to the increase in the value of a designated number of shares, usually paid in cash but occasionally settled in shares (this is called a stock settled SAR). 7. Worker cooperatives are very different from the above mechanisms. They require members to join. Each worker-member buy a membership interest at a fixed price, or buys a share. Only workers can be members, but cooperative can hire non-worker owners. Each member gets one vote. The tax rules for employee ownership vary widely from country to country. Only a few, most notably the U.S. Ireland, and the UK, have significant tax laws to encourage broad-based employee [3] ownership.