Principles of the Employee Stock Ownership Plans
January 27th 2012 -
The similarities of ESOP to the profit-sharing plan are uncanny, but there is an obvious difference concerning the time duration of purchase of the two mentioned plans. The profit-sharing plan is available for purchase, only during a fixed interval, and the price of purchase is also non-negotiable. A company’s contributions to acquire stocks are tax-deductible, when employing ESOPs.
The company automatically associates stock options to all its employees who participate in the ESOP plan. The annual wage or length of contract, among other factors governs the number of stocks allocated to a particular employee of the organization. Senior employees have additional accessibility to the shares in their accounts; such a benefit is termed as vesting. The vesting process may take place gradually, or at once, and must be completed within 3-6 years of employment. Vesting which takes completes at once is cliff vesting, the other type is gradual or sequential vesting.
Tags: esop