Employee Stock Ownership Plan (ESOP)

An Employee Stock Ownership Plan (ESOP) is an employee benefit plan that gives employees ownership of shares in the company for which they work. When an employee leaves the company, the company must buy the shares back at their full market value. To determine the market value of the stock, companies that offer ESOPs must have an annual valuation.

A company may set up an ESOP as a way to reward employees – shares are typically given to an employee rather than purchased by an employee. Companies may also hope that by making employees owners, they will show a stronger work ethic and greater dedication to their jobs. Research has shown that an employee who has a stake in his or her employing company has a more positive attitude toward that company, which in turn, affects the company’s bottom line.

Conducting a valuation is one of the first things a company considering an ESOP should do before implementing the plan. If it turns out that the value is higher than expected, the amount the company would have to pay to departing employees may be too high to afford. To determine the company’s value, an appraiser will consider the company’s cash flow, profits, goodwill, and the value of the company’s assets. Other factors that will be taken into consideration are market conditions and comparable company values.

By: Present Value

Tags: Employee Stock Ownership Plan, ESOP

This entry was posted on Tuesday, June 23rd, 2009 at 7:36 pm and is filed under Business Valuation, Machinery & Equipment Appraisal. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.