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A Comprehensive Overview of Esop

In: Business and Management

Submitted By Rainmaker99
Words 9654
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A Comprehensive Overview of ESOP

Introduction
On a rainy business trip to Florida recently, I got up early and put on my Gore-Tex running outfit to go our for my morning jog. After showering, I threw my Crest Toothpaste into a bag and hurried over to Starbucks for coffee and a pastry. I needed to catch my Southwest Airlines flight soon, but I left my razor at home, so I rushed into the Publix Supermarkets and picked one up. It was going to be a long day, but I felt good that all the products and services I'd used so far had come from companies where the employees were substantial or principal owners.
Why Employee Ownership Is Popular
There are a number of reasons for the popularity of employee stock plans. ESOPs provide attractive tax benefits. They allow companies to borrow money and repay it in pretax dollars. They provide a way for owners of closely held businesses to sell all or part of their interests and defer taxation on the gain. And they make it possible for companies to provide an employee benefit simply by contributing tax-deductible shares of their own stock, among other benefits. Broadly granted stock options do not provide special tax benefits but give growing companies a way to compensate employees with equity rather than more cash. Putting company stock in 401(k) plans provides a less expensive way for companies to match employee deferrals than matching in cash. Employee stock purchase plans (often called Section 423 plans, although not all such plans fall under this part of the tax code from which the name derives) allow employees to put aside part of their paychecks to buy stock, usually at a significant discount.
Just as important, however, are potential productivity gains. Studies consistently show that when broad employee ownership is combined with a highly participative management style, companies perform much better than they otherwise...

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