ESOP is an acronym for Employee Stock Ownership Plan. ESOP is a benefit plan for employees that allow them to own part of the company's stock they worked for when they retire.
According to American University, the federal tax and pension laws authorized and encourages ESOP as a qualified retirement plan for business owners, employees, and the community.
Companies of all sizes use ESOP with many large publicly traded companies not exempted.
Both companies and employees benefit from ESOP in many ways. For employees, it ensures a retirement savings plan that is connected directly to the company. So, as the company's stock price rises, the value of the employees' shares also rises.
For companies, ESOP serves as a motivating and employee retention tool. More so, it provides tax benefits.
The Employee Retirement Income Security Act of 1974(ERISA) oversees the regulation of ESOP and so sets standards for its administration. It also secures fiduciary responsibilities for the plan trustee.