An employee stock ownership plan (ESOP) is a qualified, defined-contribution employee benefit plan designed to invest primarily in the stock of the sponsoring employer. Employees can gain company ownership through a variety of ways, such as: buying stock directly through the company, receiving stock as a bonus, accepting stock options, or obtaining ownership through a profit-sharing plan. The employer also benefits through a variety of tax benefits.
ESOPs are often used as a corporate finance strategy and are also used to coordinate the interests of a company’s employees with those of the company’s shareholders. Stock ownership packages can increase participant interest regarding company performance and share price appreciation. Participants who are interested in seeing a positive stock performance are believed to act in a manner that suits the shareholders, as the participants themselves are also shareholders.
- Maintaining company culture
- Decreasing performance in the workplace
- Preventing employees from owning too much stock
The fair market value of a privately-held stock is not as readily determined as the value of publicly traded stock investments. The stock price of an ESOP-owned company is more accurate when valued by specialized teams, like Scalar’s, who understand the various valuation methodologies.