Sunday, January 2, 2011

ESOP

An ESOP (Employee Share Ownership Plan) is any form of arrangement whereby a company promotes and enables employee ownership of the company's equity. The form and function can vary depending on the company's philosophy, existence of tax benefits, laws and regulations, etc. As an example, the company may grant top executives stock options - which give them the right but not the obligation to purchase shares at a certain price in order to motivate them to build shareholder value. Other examples include allowing employees to receive their bonus in the form of stock, usually at a discount to the market price, and/or with additional shares being granted or an interest free loan being extended for such purchases. Many companies engage in such practices in order to align employee and shareholder interests, as well as motivating and attracting talent.

Synonyms: Employee Share Ownership Plan, Stock purchase plan, Stock option plan

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