An employee stock ownership plan (ESOP) refers to a plan that is designed for employees within an organization and which act as a defined contribution plan. In this case, the employees contribute funds to purchase the organization stocks that belong to their employer. When setting up such a trust, the organization organizes the means through which it can provide stocks to enhance the performance of their employers and thus boost its overall productivity. ESOP provides a security to the employees since they become partial owners. In addition, their productivity improves because the organization performance has some impact on overall shareholding. For the employees, it offers them a chance to avoid the taxes, since the contributions will act as a relief in their total income tax. Moreover, the employers do not remit taxes on ESOPs earnings and dividends. Therefore, ESOPs are essential for the enhancement of employee morale and productivity in any organization (Rodrick, 2005).
An example of a corporation that has adopted ESOP is Conrail Inc. The corporation has issued some of its stock to employees. In this regard, the corporation managed to reduce its tax liabilities while improving the productivity of its employees. Furthermore, the performance of the stocks has improved leading to its drastic growth. Based on such initiatives, the management of the organization has inputted a lot of emphasis on productivity that seeks to attract and retain clients. On the other hand, stock bonus is issued to employees with high performance records to encourage high retention level. In addition, such practices have limited external influence.
An analysis of the benefits of ESOPs indicates that such plans are beneficial for an organization to stimulate productivity. Taxes attributed to employers and employees decline since the plans are tax-exempt. In this consideration, the company used the plans to improve its performance and expand its market share.