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How ESOPs benefit employees and employers

September 2, 2015

Providing competitive employee benefits can boost worker morale, attract and retain top talent, and increase overall employee satisfaction levels. Not only does a strong benefits package help entice workers, but it also improves the employer’s reputation with employees.

According to a 2014 U.S. Worker Survey, more than three-quarters of respondents who said they either had an “excellent” or “very good” benefits package also rated their employer with similarly high marks, Employee Benefit News reported. Meanwhile, of those employees who rated their benefits package as poor, only 18 percent said their employer deserved high marks. Employees consistently equate their job satisfaction and employment happiness with the benefits package available to them. In many cases, companies use this metric as a reflection of their employees’ views of the owner or majority shareholder as well.

“Providing workers an ownership stake in the company can boost productivity.”

While generous health insurance and paid time off constitute a good portion of employee benefits, a lesser-known but very impactful benefit owners can provide is an Employee Stock Ownership Plan (“ESOP”). Through an ESOP, owners can transfer ownership in the company to employees. By providing workers a stake in the company, ESOPs can motivate and drive company productivity. These plans provide a strong incentive for workers to see the enterprise succeed, and can provide increased financial security as a retirement plan.

Why ESOPs are also good for owners

Under Section 1042 of the Internal Revenue Code (IRC), owners selling their company to an ESOP can greatly alleviate their capital gains tax liability based on the IRC criteria. If an owner is interested in gaining liquidity but remaining involved in day-to-day operations, selling to an ESOP can provide the flexibility to do so. Selling to a competitor or a private equity group would not afford the same tax advantages to the selling shareholders.


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