Employee stock ownership plans (ESOPs)
Employee stock ownership plans (ESOPs) are usually found in publicly traded or closely held institutions of almost all size. The benefits of ESOP are always accomplished on the tax advantage basis. This strategy gives the employees of an institution chance to become beneficial owners as far as the company stock is concerned. In real sense, ESOPs are made up of the contribution plans that are mainly invest in employer stock and they are always governed by the employee retirement income security act in most of the nations. The advantages are as follows:
- It acts as an exit strategy to many private business owners. It has been reported that many private business owners currently uses ESOP as the exit strategy. ESOP is an excellent tool when it comes to succession planning in organizations i.e. for both liquidity and transition businesses.
- ESOP also allows the owners of the businesses to reward their workers as well as managers with a stake within the organization.
- The flexibility of the ESOP as far as transactions is concerned allows the business owners to withdraw in a slowly manner over a given time or even at once. This always depends on the needs of the business owners.
- ESOP allows for the continuity of the governance within an organization. Always the members of the management tend to retain their position that they were initially. This eventually creates room for smooth transition when forming as ESOP. In addition to this, another benefit of the ESOP as far as smooth transaction is concerned is that it helps the company retain its long term suppliers, distributors as well as customers since the prior built relationship is not broken down.
In addition to the above named key advantages of ESOP to an organization, the following are also benefits that ESOP brings to the company:
- It aligns the interest of the workers with that of the company shareholders.
- ESOP Allows for the recruitment of the key employees.
- It tends to lower the amount of supervision that is required of the workers.
- It makes the company to increase the innovation from the employees.
- It makes the employees to more loyal to the company.
- It also increases the value of shareholders to the company.
- It also motivates the workers so that they can be more productive than ever before thus increasing the market share of the organization.
- It improves the communications that always occur between the employees and their managers and in the long run increase the cooperation among the workers and the managers for the betterment of the company performance.
- Since it increases the loyalty within the company, this eventually reduces workers turnover.
- It improves the job satisfaction of almost all the employees.
ESOPs are essential to almost all companies, as the companies that are owned by an ESOP either in whole or in part always have significant benefits and advantages in terms of control.