What is an Employee Stock Ownership Plan?

What is an Employee Stock Ownership Plan?

Whether used as an exit strategy or vehicle to raise capital for growth, an Employee Stock Ownership Plan (ESOP) can be a powerful tool for rewarding your employees for their contribution to the success of your business.

Through an ESOP, you can align the self-interests of your employees with the financial performance of your business by granting them allocations of company stock.  Over their tenure with your company, your employees will accumulate shares and participate in the appreciation on the value of that stock.  Simply put, the employees win when the business wins.

Did you know?

  • There are significant tax advantages available to ESOPs
    • Profits of an S-corporation ESOP can be exempt from corporate income taxes
    • Tax benefits exist for business owners who sell to an ESOP
    • Those tax savings can be used to purchase shares of company stock from an owner thereby facilitating a “win-win” exit strategy
  • Selling to an ESOP can provide indefinite life to your business and job security to your employees by assuring that decisions will continue to be made locally
  • The seller can retain decision-making abilities after the sale
  • Numerous studies have validated that:
    • ESOP companies out-perform their non-ESOP peers in terms of growth and productivity
    • Employees of ESOP companies have larger retirement assets than those working at non-ESOP companies

    Every business leader dreams of a workforce that is laser-focused on the same goals, contributing 110% to the business, and making smart decisions to service their customers and thereby increase the value of the business.  By itself an ESOP does not magically create this kind of engagement, but it can be a powerful tool to incentivize and reward those who do.

    For more information on ESOPs, contact the ESOP Association through their website www.esopassociation.org.

    Becky Streff is the Manager, Human Resources at ESP International in Cedar Rapids, Iowa.  ESP International is an 100% employee-owned company.

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