Employee stock ownership plans (ESOPs) are company-wide plans in which the employer contributes shares of its own stock (or cash to be used to purchase such stock) to a trust established to purchase shares of the firm’s stock for employees. The firm generally makes these contributions annually in proportion to total employee compensation, with a limit of 15% compensation. The trust holds the stock in individual employee accounts and distributes it to employees upon retirement (or other separation from service), assuming the person has worked long enough to earn ownership of the stock.
Definition