Employee Stock Ownership Plan - ESOP

See: Non-Qualified Stock Option (NSO).

It's a way to reward employees by giving them shares in the company. However, unlike other stock compensation plans, this operates in very formal ways, often mirroring a pension or retirement plan. An ESOP is structured such that it offers tax benefits.

Under a typical ESOP, the shares are not given directly to the employees. Employees are allocated shares based on various criteria (years of service, position in the company, etc.). The shares are then held collectively in a trust. When an employee retires, he or she is granted the stock.

Think of it as a retirement plan where the company contributes stock rather than cash. It's riskier than a typical retirement plan for employees, because the worker is basically betting on the value of the company's stock. But it has advantages for the company, in that the firm doesn't have to use any cash to fund it.