Co-partnership- Stock option: ESOP
- A partnership or association between two equals, esp in a business enterprise.
- A form of industrial democracy in which the employees of an organization are partners in the company and share in part of its profits.
Stock options are sold by one party to another, that give the option buyer the right, but not the obligation, to buy or sell a stock at an agreed-upon price within a certain period of time. American options, which make up most of the public exchange-traded stock options, can be exercised any time between the date of purchase and the expiration date of the option. European options, also known as “share options” in the United Kingdom, are less common and can only be redeemed at the expiration date.
Employee stock ownership plan (ESOP)
An employee stock ownership plan (ESOP) is an employee-owner program that provides a company’s workforce with an ownership interest in the company. In an ESOP, companies provide their employees with stock ownership, often at no upfront cost to the employees. ESOP shares, however, are part of employees’ remuneration for work performed. Shares are allocated to employees and may be held in an ESOP trust until the employee retires or leaves the company. The shares are then either bought back by the company for redistribution or voided.
Some corporations are majority employee-owned; the term “employee-owned corporation” often refers to such companies. Such organizations are similar to worker cooperatives, but unlike cooperatives, control of the company’s capital is not necessarily evenly distributed. In many cases, voting rights are given only to certain shareholders, and more senior employees may be allocated more shares than new hires; typically, they are tied to the compensation an employee receives from the company. Compared with cooperatives, ESOP-centered corporations often allow for company executives to have greater flexibility and control in governing and managing the corporation.
Most corporations, however, use stock ownership plans as a form of in-kind benefit, as a way to prevent hostile takeovers, or to maintain a specific corporate culture. The plans generally prevent average employees from holding too much of the company’s stock.
ESOP and Other Forms of Employee Ownership
Stock ownership plans provide packages that act as additional benefits for employees to prevent hostility and keep a specific corporate culture that company managements want to maintain. The plans also stop company employees from taking too much company stock.
Other versions of employee ownership include direct-purchase programs, stock options, restricted stock, phantom stock and stock appreciation rights. Direct-purchase plans let employees purchase shares of their respective companies with their personal after-tax money. Some countries provide special tax-qualified plans that let employees purchase company stock at discounted prices. Restricted stock gives the employees the right to receive shares as a gift or a purchased item after meeting particular restrictions such as working for a specific period or hitting specific performance targets. Stock options provide employees the opportunity to buy shares at a fixed price for a set period. Phantom stock provides cash bonuses for good employee performance. These bonuses equate to the value of a particular number of shares. Stock appreciation rights give employees the right to raise the value of an assigned number of shares. Companies usually pay these shares in cash.