Employee stock option plans (ESOPs) were conceived to be a “win-win” for businesses, under the right circumstances. The premise is, when employees have an equity stake in the company they work for, their interests will be aligned with owners because they actually become owners themselves.
Congress established tax benefits for ESOPs to help business owners overcome possible concerns about the administrative complexity involved in establishing and maintaining an ESOP. Approximately 7,000 companies now sponsor ESOPs. Small employers often use these plans as an exit strategy, and happily sell their company over to the ESOP and, by extension, their employees.