An Employee Stock Ownership Plan (ESOP) is an incredibly effective way for an employer to empower its workers while providing them with a great opportunity to participate in their company’s success and reap the financial rewards that come with it. ESOPs are employee equity plans where workers are given shares of stock in the company instead of a direct cash bonus or raise. The value of the stock depends on the overall performance of the company and the respective share prices, which in turn allows employees to benefit from the company’s performance and consequent success.

Employees must generally work with the company for a specific period of time in order to qualify for shares of stock, sometimes referred to as “vesting,” and in order to receive any distributions from the plan. A vesting schedule defines the rules for receiving a particular benefit, so it’s important for employees to read the details of their ESOP plan and understand the vesting schedule.

There are several other methods of employee ownership as well, including direct-purchase programs, stock options, restricted stock, phantom stock, and stock appreciation rights. Each plan has different rules, so it is important for each employee to become familiar with the exact details of their own plan. All of these methods of employee ownership allow for companies to develop a strong connection between their workforce and the performance of the company therefore allowing them to create strong employee engagement and a higher regard for their work.

Overall, an ESOP is an excellent way for a business to provide great benefits to their employees while increasing the accountability and sense of appreciation — it’s a win-win. Employees who understand the difference between traditional compensation and employee ownership enjoy the recognition and rewards that come with ownership, and are more likely to give their all to their work. ESOPs empower employees to take a stake in their company’s success, and continue to be a great way for small businesses to reward their most valuable employees while developing a solid sense of engagement and commitment.