An ESOP Australia as they are popularly known, are employee benefit plans that allow staff to have a stake in the company they work for. This is where the employer apportions a certain stake of the company’s stock or shares to a qualifying employee at no upfront cost. In many cases, the program is voluntary in which an employee agrees to own a percentage of the company’s shares at a much lower cost. In some companies, the distribution may be based on the employee’s pay scale, terms of service, or such other basis upon which the company may devise.
The said shares for a staff stock ownership plan are often held in trust units to guarantee the safety of the investment and growth until such a time when the staff in question exits the firm or retires whichever comes first. These shares are usually redeemable meaning that the company can buy them back upon exit or retirement of the employee for onward redistribution to the remaining employee.
What is the Goal of Employee Stock Ownership Plans?
As already alluded to above, an employee stock ownership aims at giving an employee to invest in his employer’s company. The purpose of the plan is to make the employees feel part of the company besides being employees. It helps to align the goals of an employee with those of the company’s shareholders. By allowing employees to have a stake in their employer’s company, employees transition from being just workers to becoming owners of the company. This twin approach can go a long in making the employees to put in the best for their company and also the shareholders. These plans help to motivate the employees to deliver the best for the shareholders since they have another shoe they wear—shareholders.
How an ESOP works
To create an ESOP Australia, a company will first a trust in which employees’ funds are invested or in which cash is put to buy an existing stock to be distributed to the eligible employees. The contributions towards the trust are usually tax-deductible but to a given limit. After which the shares are allotted to individual employee accounts. The most common formula of sharing the shares or stake is the length of service or proportion of compensation or both. For new employees entering the service, they will be expected to complete a given period before they being receiving their allocations.
