Employee Ownership Plans: What Are They and How They Benefit Your Business
If you’re looking to give your employees a sense of ownership in your company, an employee ownership plan might be the answer.
Employee ownership plans, or EOPs, allow employees to become partial or complete company owners. There are many benefits to implementing an EOP in your business.
This blog post will help you learn what employee ownership plans are and how they can be advantageous.
Employee Ownership Plans
Employee ownership can take many different forms, from giving employees the option to purchase shares at a discounted rate to awarding shares based on length of service or performance.
There are many different ways to set up an EOP, and the best way for your business is to base your strategy on your specific goals and needs.
Comparison With 401(K) Plans
One of the most common questions about employee ownership plans is 401(k) retirement plans.
The two types of plans are pretty similar. Both allow employees to set aside a portion of their paycheck to invest in their company. The main difference is that, with an EOP, the money goes towards buying shares in the company, while with a 401(k) plan, the money is invested in a retirement account.
Types of Employee Ownership Plans
The four main types of employee ownership plans are:
Employee Stock Option Scheme Or ESOS
An employee stock option scheme (ESOS) is a plan that gives employees the right to buy shares at a predetermined price. This price is usually set at the time of the grant and is typically lower than the market value of the shares.
The employee can then exercise their options and purchase the shares at this pre-set price, regardless of the current market value. ESOS plans are a form of the long-term incentive plan, as they typically have a vesting period of three to five years.
This means that the employee must stay with the company for a certain amount of time before exercising their options and buying the shares.
Share Purchase Plan Or SPP
A share purchase plan (SPP) is a plan that allows employees to buy shares in the company at the current market price.
Unlike ESOS plans, there is no pre-set price for the shares, and employees can purchase them as soon as the plan is open. SPP plans are a form of the short-term incentive plan, as there is no vesting period, and employees can buy the shares immediately.
Stock Appreciation Rights Or SARs
Stock appreciation rights (SARs) are a type of EOP that gives employees the right to receive cash or shares in the company, depending on the increase in the value of the company’s shares. The amount of cash or shares received is typically determined by a formula that considers the increase in share price and the number of SARs held by the employee.
SARs are a form of the long-term incentive plan, as they typically have a vesting period of three to five years.