ESOP (Employee Stock Ownership Plan)

An Employee Stock Ownership Plan (ESOP) is a specialized retirement benefit program found primarily in the United States, designed to provide employees with an ownership interest in the company they work for. Governed by federal laws such as ERISA and the Internal Revenue Code, ESOPs are established as trust funds where companies can contribute new shares of their own stock or cash to buy existing shares. The concept was pioneered by Louis Kelso in the 1950s and officially codified in U.S. law under the Employee Retirement Income Security Act of 1974.

Ownership of an ESOP is unique as it is not held by a single parent corporation but rather by a trust on behalf of the employees. While the Internal Revenue Service (IRS) provides the regulatory framework and oversight for these plans, the individual 'owner' of a specific ESOP is the workforce of the associated private or public corporation. This model is often used as a corporate finance strategy to align employee interests with shareholder goals, facilitate succession planning for departing owners, and provide tax-advantaged retirement benefits.