ESOP gives US workers major stake in thousands of US companies

Posted on 14 Apr 2015 by Aiden Burgess

Employees throughout the US have benefited thanks to a concept which is the most common form of employee ownership in the country.

Employee Stock Ownership Plan (ESOP) is a form of employee benefit plan similar in ways to a profit-sharing plan.

An ESOP involves a company setting up a trust fund into which it contributes new shares of its own stock or cash to buy existing shares.

The ESOP can also borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan.

Shares in the trust are allocated to individual employee accounts, with allocations made either on the basis of relative pay or a more equal formula.

As employees accumulate their company seniority, they acquire an increasing right to the shares in their account in a process known as vesting.

Employees receive their stock once they leave the company, which the company must buy back from them at is fair market value, unless there is a public market for the shares.

Companies can use ESOP’s for a variety of purposes, including to provide a market for the shares of departing owners of successful closely held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pretax dollars.

ESOP, a previously unknown phenomenon

The concept of an ESOP was largely unknown until 1974.

But 40 years later, and 7000 companies had ESOP’s covering 13.5 employees throughout the US in 2014.

One of the thousands of companies to implement an ESOP system is Henny Penny.

The Ohio-based foodservice equipment company announced in January that as of December 30, 2014 it had become employee-owned through the sale of its stock to a newly formed ESOP.

Other US  companies which have also implemented an ESOP in recent years include Boston-based Creative Financial Staffing, Homeland Acquisition Corporation and its supermarket chain in Oklahoma City, The Saxton Group and its New York restaurants, and Charlotte-based healthcare service Acuity Healthcare.