how does an employee stock ownership plan esop work 
an esop is usually formed to facilitate succession planning in a closely held company by allowing employees the opportunity to buy shares of the corporate stock esops are also offered as a retirement benefit esops are set up as trust funds and can be funded by companies putting newly issued shares into them putting cash in to buy existing company shares or borrowing money through the entity to buy company shares esops are used by companies of all sizes including a number of large publicly traded corporations contrary to what some people say companies with an esop must not discriminate and are required to appoint a trustee to act as the plan fiduciary among other things it is not possible for senior employees to receive more shares or for esop participants to have no voting rights although to be clear senior employees will naturally accumulate and have more vested shares over time advantages of esopssince esop shares are part of the employees remuneration package companies can use esops to keep plan participants focused on corporate performance and share price appreciation by giving plan participants an interest in seeing the company s stock perform well these plans supposedly encourage participants to do what s best for shareholders since the participants themselves are shareholders employees meanwhile are presented with a way to make more money increase their compensation and essentially be rewarded for their hard work and commitment having a stake in the company should make employees feel more appreciated and perhaps make going to work more exciting esops incentivize employees to give their all and thus can favor all parties esop up front costs and distributionscompanies often provide employees with such ownership with no up front costs the company may hold the provided shares in a trust for safety and growth until the employee retires or resigns companies typically tie distributions from the plan to vesting which gives employees rights to employer provided assets over time typically they earn an increasing proportion of shares for each year of their service vesting can happen immediately after a certain number of years cliff or gradually over time graded 