Why would an employer want to establish an employee stock ownership plan?
Use of an ESOP allows employees to become owners of the business, which in turn may increase productivity and reduce labor costs and disruptions. ESOPs can also provide a source of deferred compensation, retirement income, and capital accumulation to employees. An employer can contribute newly issued shares of corporate stock to an ESOP and obtain a tax deduction equal to the fair market value of the stock contributed without parting with cash or property. Furthermore, ESOPs provide a friendly way of holding large blocks of corporate stock and have been used as anti-takeover tools. Many corporations also use ESOPs as a corporate financial tool.