An ESOP is a Qualified Retirement Plan


An ESOP is a Qualified Retirement Plan 

ESOP stands for Employee Stock Ownership Plan.  An ESOP is a qualified retirement plan that can be used as a business transition tool and as an employee ownership vehicle.

An employee stock ownership plan (ESOP) is an IRS qualified retirement plan, similar to a 401(K) Plan, that buys, holds, sells company stock, providing employees with an ownership stake in the company, as well as an additional form of compensation directly linked to success of the company. 

  •  ESOPs and 401(k) plans are both tax deferred retirement plans that are funded by pre-tax contributions.
  • While 401(k) Plans are funded with employer and employee contributions, most ESOPs are funded exclusively with company contributions. This means that most ESOPs are provided by the company at no cost to the employees.
  • While 401(k) Plans are invested in stock and bonds and other investments, ESOPs are the only retirement plan that is allowed to be primarily invested in employer securities of the company.
  • While 401(k) Plan account values are generally updated on a daily basis based on the results of the stock market, ESOP account values are generally updated once per year. This is because most ESOPs own privately held stock.  Since there is not a stock market for privately held stock, the ESOP trustee has to obtain a valuation from an independent appraiser once per year.
  • A leveraged ESOP is the only retirement plan that is allowed to borrow money. It is also the only retirement plan allowed to enter transactions with “parties-in-interest” (e.g. the company, owners).  These special ESOP rules allow ESOPs to be able to purchase stock from the company or owners of the company.

Check out this brief animated video to learn more about ESOPs. 

Did  you know? Employee Owned Companies are 235% Better at Job Retention!  

10 Traits of an Effective Executive Sponsor

During times of change, senior leaders play a key role as an executive sponsor. According to Prosci’s,  Best Practices in Change Management – 2018 Edition, the greatest contributor to a successful change initiative is “active and visible executive sponsorship”.

An executive sponsor is typically a C-Suite leader who oversees a business unit and is responsible for meeting project deadlines. They oversee projects and keep them aligned with the organization's strategy and direction.

During an ESOP implementation and ongoing support and buy-in, the role of the executive sponsor sets the tone for how employee-ownership is embraced in the organization. 

Tie Culture to Performance Management

Building an ownership culture begins with defining and communicating organizational purpose and values, tying them to your performance management process, and rewarding employees for their contributions. Building a People Strategy around your ideal culture will generate change.

Part 2 of a 3-part series

Building Culture Through Values, Performance Management, and Rewards

Building an ownership culture begins with defining and communicating organizational purpose and values, tying them to your performance management process, and rewarding employees for their contributions. Building a People Strategy around your ideal culture will generate change.

Part 1 of a 3-part series.

We Lost Control of the Message…

Are your employees challenging you by feeling they are entitled to make decisions above their pay grade? Decisions outside the scope of their role? Feeling the need to “approve” peer compensation?

While these may seem like extreme examples, if you lose control of the message, this could become your reality. Management is still in control with an ESOP (employee stock ownership plan). Organizations still have an organization chart with positions and people identified to fill key roles. An employee ownership culture encourages empowerment and engagement but managing expectations is important to keep a healthy culture.

Leadership in an Employee-Owned Culture

Hiring a new leader to join your employee ownership culture? I was recently speaking with a human resources manager compiling a job specification for a senior manager succession plan she needed to fill due to a pending retirement. As we began discussing the transition, a thoughtful dialogue on what leadership looked like in an employee-owned culture soon became the focus. Here are some key attributes we came up with.

Keep Your ESOP On Track and On Time
12 Benefits of Incorporating an ESOP in your Business Exit Strategy

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