An Employee Stock Ownership Plan (ESOP) is a retirement plan that provides employees with ownership interest in the company they work for. ESOPs are set up as trust funds where companies contribute shares of their own stock or cash to purchase existing shares. The value of the ESOP grows as the company grows, aligning the interests of employees with those of the company, as employees directly benefit from the company’s success.
For example, if a manufacturing firm implements an ESOP, employees could receive shares over time, which they can cash out upon retirement, based on the value of the stock at that time. This not only serves as a retirement benefit but also motivates employees to contribute to the company’s growth and profitability.
Related Terms:
Long-Term Incentive Plan (LTIP)
