Why Are Employee Stock Ownership Plans Set Up?

You may already know from your own experience that people tend to work harder when they feel a sense of ownership in their jobs. Giving employees the ability to own company stock can make them feel like an important part of the company they work for, increasing their dedication and work effort. When employees feel they are active participants in the workings and direction of their company, they are also more likely to be satisfied with their jobs, reducing turnover.

Besides the tax benefits of establishing an employee stock ownership plan (ESOP), companies also provide this plan to reduce the number of monetary bonuses they have to pay out, to borrow money on a more favorable basis, to divest or buy subsidiaries, or to buy shares from a departing owner.

Besides increased morale, the employee also gets a wide variety of benefits from participating in an ESOP. Employees can use the stock ownership to supplement their retirement plans. Employees may also receive their company shares at prices discounted below current market value. Participating in an ESOP gives employees the possibility of potential investment growth.

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