An ESOP is a defined contribution plan that invests in employer securities.
ESOPs enable privately-held companies to sell shares, at a fair market value, to an employee trust. This is not a stock option program. Instead, an ESOP is an ERISA-authorized benefits plan.
Who’s the buyer?
A trust representing at least 10 employees.
Who sets the price?
The price is negotiated with an institutional trustee, based on an independent valuation.
How is it funded?
Commercial and/or seller financing, paid-off with pre-tax corporate cashflow.
Who gets shares?
Full-time employees are allocated shares proportional to their annual compensation.
How is stock earned?
A portion of all shares is allocated annually; the shares vest within 3-6 years.
How do employees cash out?
Vested stock is sold back to the company, at a current valuation, when employees depart or retire.