Thousands of small companies are growing faster and keeping employees longer with employee stock ownership plans (ESOPs) and ownership "cultures." An ESOP is a type of employee benefit plan, similar to a profit-sharing plan. Instead of cash, however, workers receive shares in the company. Company contributions to such plans may also be tax deductible, within limits.
ESOPs work wonders for some growing businesses, but they are not right for all. You will need to consider carefully if offering a small stake in your business to employees is the right approach for you. But "employee ownership" takes many forms, including:
- Formal employee stock ownership plans
- Equity compensation plans such as stock options
- Ownership cultures and "phantom stock"
Action Steps
The best contacts and resources to help you get it done
Locate help for building a successful employee ownership program
The Beyster Institute offers a variety of programs and training on employee ownership.
I recommend: The
Beyster Institute Web site has great answers to all of your employee ownership questions, including
types of ESOP programs, how to
choose the right program,
critical issues and owners' concerns and
keys to success.
Get a free online consultation or sign up for free or paid consulting services
The Beyster Institute, part of the University of California San Diego School of Business, offers a range of consulting services. Private firms can also help.
I recommend: Complete a quick
online questionnaire as a prelude to a free consultation from a Beyster expert that will help you decide which employee ownership program is right for your business. Check their other
consultation services.
ESOP Services, Inc. is an experienced consulting firm that helps companies design and implement ESOPs. The firm offers a
free preliminary assessment and excellent tips and advice, including a
summary of ESOP uses, ESOP rules for
S-corps, ESOP
advantages,
FAQs and
steps to implementing an ESOP.
Discover the pros, cons and inside workings of ESOPs
The non-profit National Center for Employee Ownership (NCEO) is a top source of information on employee stock ownership plans and related programs.
I recommend: You do not have to join
NCOE to take advantage of most online resources (although regular membership is only $80). Offerings include a reference desk with basic information and
guidance for businesses wondering which type of stock plan to use, along with key information on
stock option plans,
ESOPs and
establishing an ownership culture at your business.
Rub elbows with companies that have ESOPs
The ESOP Association — an organization of companies with employee stock ownership plans — is a national cheerleader for the ESOP cause.
I recommend: The
ESOP Association offers extensive (and free) information on how ESOPs work, tax and other advantages of having one and how to establish a plan.There's also a helpful list of
ESOP experts that you can search online by specialty. One advantage the ESOP Association offers is access to localized advice and information through
state and regional chapters.
Tips & Tactics
Helpful advice for making the most of this Guide
- An employee stock ownership plan (ESOP) is a type of tax-qualified employee benefit plan in which most or all of the assets are invested in stock of the employer.
- A stock option plan grants employees the right to buy company stock at a specified price during a specified period once the option has vested.
- An employee stock purchase plan (ESPP) is a little like a stock option plan. It gives employees the chance to buy stock, usually through payroll deductions over a 3- to 27-month "offering period."
The official source of Employee Stock Ownership Plans (ESOPs) is
the Stock Option Strategies page at Business.com
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