Frequently Asked Question: What is an employee share ownership purchase plan (ESOP)?
Employee share ownership purchase plans are one type of gainsharing. They exist in many corporations but mainly in larger ones. At every pay date, employees have the option to automatically withdraw a prearranged percentage of their wage in order to buy shares of the company they work for. Most employers cap the percentage the employees can dedicate towards buying shares each year and some will even match contributions up to a certain percentage. For instance, a company may allow an employee to contribute 9% of his/her income and will match half of any contribution up to 6%. So if you choose to contribute 8%, the corporation will pay 3%. Or if you choose to contribute 5%, the corporation will pay 2.5%.
There are many benefits to such a program.
- In the eyes of the employer, the employee will be more concerned about and committed to bottom line results because they own shares in it as minority shareholders.
- From the employees’ perspective, they get an easy way to participate in the stock market and, in some cases, they get to purchase shares at subsidized discount rates through an employer matching program.
- The employer and employee are locked into a mutual emphasis on productivity, waste reduction, and profit-seeking results.