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ESOP – Employee Stock Ownership Plans

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Introduction to the Issue

Based on the employee stock ownership plans, there are many companies in the world that use this model in order to remain sustainable on the market. The ESOP approach to the management of the company is based on the business assessment towards the competitive market demand. In all, there are still contemplations on whether this is the right thing to do for business or not (Adamson, 1993).

However, there are plenty of cases where the ESOP model works best for both the owners of the company and its employees since they are willing to be more effective on their employment position and generate more sales to get the highest returns not only by means of a standard wage but also by means of the long-term investment (Buxton & Gilbert, 2004).

Today, a great deal of companies use the ESOP plans in order to install the idea in the minds of their employees that own the company as well as the head of the company. Therefore, such a fact requires understanding of the profitability that enroles in the desire to work harder in order to keep at least the same level of stocks on the market and even improve it (Carlson, 2009).

Why Neglecting the Benefits of Retirement Planning and Investment is a Problem

The earlier people start thinking about their retirement age, the more chances they have to endure a favorable future. Mainly, it is important for achieving personal goals for their lives. Every person has objectives, as well as perspectives to manage; however, the difference is that all the people succeed in such a planning (Dema & Harwood, 1991).

The idea is to make people think about retirement, as well as the proper time to get ready to plan one’s life while managing a perspective for the future. Today, every single person in the world, despite the country and age should think about retirement plan in order to remain sustainable during the pension time (Davidson & Worrell, 1994).

Thus, the overall contingency plan would be to use the retirement plans such as IRA, Roth IRA and 401(k) as well as add 20% of the total sum of money over the calculated retirement spending since this will cover the associated risk factors and help meet the goals for the retirement period of life (Katz, 2005).

Importance of Acknowledging the ESOP Usage

Among numerous companies, it is still considered that the ESOP plan can make a contribution for the owners of the company in terms of the values it brings to its employees. Nowadays, there are different variations of the ESOP planning and the business owners are testing on the alternatives in terms of which option of the ESOP plan could result in the long-term perspective with the most favorable outcomes for the business owner (Employee ownership foundation, 2009).

Based on the findings of different companies, the ESOP plan has a chaning influence on the employees in terms of the operational efficiency of their work. A great number of the ESOP companies claim that they have a positive influence on the overall performance and productivity of the company and its employees and even on the fact of making the better managerial decisions (Hallock, Salazar & Venneman, 2003).

The practical outcomes consider the fact of interest in the ESOP program in relation to improvements in the overall performance of the management personnel and the advantages of cooperation with the employees, who are interested in the fact of developing better communication sequencers (Katz, 2005).

It is believed that such a program could have a more favorable advantage for the business owners towards the employee inscentive program. A great number of companies consider the ESOP approach to be the most appealing solution to make the employees understand the true values of the companies they work for. In other words, the business could be considered more attractive from the position of ESOP strategies (McHugh, Cutcher-Gershenfeld & Bridge, 2005).

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Many companies take advantage of the ESOP strategy in terms of protecting their companies on the stock market. Such an approach helps improve the position of the company and its financial leverage towards the takeover position. Furthermore, it is a proven practice to use the ESOP system in order to measure the performance of the company as well as generate more favorable returns on stocks, assets and the overall productivity of the companies. In other words, the ESOP approach motivates the employees for a high quality work by means of protection their shares in the companies (Nancy, 2010).

There is an increase among the ESOP companies in terms of their growth and productivity factors. However, the debates towards the efficiency of such an approach still continue. The examination of whether this is a positive solution in terms of the long-term investment for the business owners is believed to be based on the employees satisfaction outcomes (Pugh, Jahera & Oswald, 2005).

Thus, the overall idea of the research is to understand whether the ESOP approach is the best option for both the business owners and employees including the factors that define the advantages and disadvantages for all categories of people. One of the steps that is believed to be important is the employee satisfaction that results in their commitment that address a better turnover and the overall productivity along with the stock performance and profitability of the company on the world market (Katz, 2005).

How ESOP Can Help Business Owners to Take Advantage of Their Stock Plans

The organizations that work in public use the ESOPs by means of the buyout protection. The companies that work in the public sector as well as the private companies both tend to take advantage of the stock ownership by means to improve motivation of the employees. In other words, the ESOPs approach of the private and public companies is used in terms of the tipical succession plan (Dema & Harwood, 1991).

At the same time, the companies have even more advantages over those which do not use the ESOP system by means o the tax benefits, which addresses the advantages of the business owner while selling the stocks of the corporation to an ESOP market for the business perspectives (Nancy, 2010).

One of the alternatives to the usage of the ESOP program is the ability for the business owner to sell the stocks of the company to the ESOP and at the same time take advantage of the buying power of sale of the shares. However, such tax benefits are accessible to the business owners only in case the ESOP holds about 30% of the company in terms of shares (McHugh, Cutcher-Gershenfeld & Bridge, 2005).

The limitations and restrictions of these shares could not belong to the family members of the business owner or have any kind of relative relationships, who also own the limited number of 25% of the company shares. After the process of working with the ESOP takes place, the company owner should use the period of 15 month of which 3 month before and 12 month later after the fact of sharing the issues has taken place (Hallock, Salazar & Venneman, 2003).

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Consequently, the stakeholder should invest the profits again in order to take advantage of the capable additional securities including the other domastic bonds, different stocks, exclusion the mutual or shared funds, for example, real estate investment trusts. Therefore, the company gains the interest only after the ESOP has placed those securities in the capital of the company after the fact of its selling (Employee ownership foundation, 2009).

By these means, the owners of companies cannot pay the income taxes despite the amount of securities and shares issues to the ESOP system. At the same time, this is not the global aim of the ESOP approach to take advantage of the smart tax scheme. Besides, there are more succession plans to follow in the future (Carlson, 2009).

At the same time, the business owners can also take advantage of the existing success planning with the help of ESOP system. After the plan has been defined, the business owner should support it with the securities of the shareholders. Therefore, there are many alternatives of the improvements towards these success plans such as the possibility to purchase the shares from the current shareholders or alternatively the company can also take another advantage of the new shares issued in order to donate the capital stock to the financial plan (Buxton & Gilbert, 2004).

The ESOP system is considered to be exclusive among other retirement plans including the aptitude to use cash. Additionally, there are more ways of making money with the help of the ESOP system such as taking advantage of the bank loans, which could also be used in order to gain the interest based on the stocks of the shareholders in the company’s plan (Adamson, 1993).

In fact, other retirement plans cannot afford such benefits for the business owners as such actions would be considered illegal without the use of ESOP system. In all, the fact of sharing the stocks of the company to the ESOP, the business owners take advantage of the additional capital that is generated through the usage of liquid securities (Pugh, Jahera & Oswald, 2005).

Apart from the standard procedure, the company is aimed at checking the allocated capital in terms of its capacity to provide the ESOP with the contribution, for example, a loan grounded on the cash flow or sufficient payroll. Apart from the investment, the size of the contribution could not be more than 25% of the money returns based on the overall succession plan, stocks and secutirities (Hallock, Salazar & Venneman, 2003).

The ESOP approach could be supported by the further contribution of the business owner based on company shares. However, such contribution is restricted to the amount of 25% of appropriate compensation. In other words, such contribution of the business owner helps avoid the tax payment by means of cash and other profits and securities of the company. Thus, every year the investment benefits are possible due to the ESOP system of managing securities, assets and other business benefits (Davidson & Worrell, 1994).

Examples of the Business Lines

Management Traits and Functions

The application of management in all meanings is the act of gathering people in order to manage the required tasks and reach the desired goals on the road to mission, vision and objectives of any company. Such an approach helps direct people as well as control the external and internal operations within any business environment (Carlson, 2009).

“Managing people in a business and organizational setting could be positive only if the manager tends to use all the available resources both efficiently and effectively in the frames of managing people, organizing and planning the process, organizational structure, staff performance management and leadership skills” (Buxton & Gilbert, 2004).

The management traits surely interact closely with the functions of management that the companies manage effectively in order to achieve success in the industry. Such functions are the same for every car organization. They are planning, organizing, leading and controlling and all of them refer to a standard management process in most companies (Adamson, 1993).

Therefore, the management traits they use “leadership, integrity, and knowledge of the industry” are in need for the proper organization of the working process, which means they perfectly fit the functions of management and could work to support one another in the company. At the same time, any innovation is not possible without a leadership role for the company. Thus, in the organizations the managers are the leaders at heart, which means that they are considered to be “confident personalities, who able to speak in public, delegate responsibilities and manage people so they could work efficiently” (Pugh, Jahera & Oswald, 2005).

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Simultaneously, “every manager has an optimistic attitude to the things around and that helps easily manage the working process.” The one has an optimistic approach to every circumstance no matter how good or bad it could be. A true manager possesses skills to help others not only do business and satisfy customers but at the same time to make the employees happy with their jobs (Nancy, 2010).

In parallel, this helps increase sales and boost productivity of the company, which results in a higher turnover and return rates of the business. Simultaneously, a manager should have a clear understanding of a business sphere in order to manage it effectively. One is always capable to support the employees with everything they need in order to do the job right.

“The ideal manager will surely work to improve his abilities and professional characteristics with the idea to have an advantage of dealing with special cases and experience that is required to manage advanced business matters.” So, all of the aforesaid makes perfect collaboration from the position of all the three companies as well as their application of management in the workplace (McHugh, Cutcher-Gershenfeld & Bridge, 2005).

Marketing and Operations

Business strategy needs to be of the same caliber that is used in a war room for executing pivotal moves that take the upper hand and result in winning. For those businesses that accept loosing or being on 2nd place then the harsh reality will come when they are taken out of the game as a competitor due to poor performance strategy (Employee ownership foundation, 2009).

How is it then in the immerging competitive global market that some companies get ahead and stay ahead while others don’t? The answer is a proper business performance strategy. In other words, the performance strategy looks to the future and developing tactics that will ensure that the business will have the ability to survive on the market, thrive and develop into a market-leading and world-beating organizations (Davidson & Worrell, 1994).

The business performance strategy has evolved from many success stories of those businesses that have become the innovators and have kept the gap between them and their competitors. There are controllable and uncontrollable performance factors that influence the success of the marketing process of any company. In order to effectively use the controllable factors, the company should gather, record and analyze all the data about both controllable and uncontrollable factors by means of making marketing decisions connected with an effective using of controllable factors (Carlson, 2009).

Any market research that focuses on the controllable factors such as production, promotion, distribution, and price factors are known as domestic marketing research, which is used globally by the top companies in the world. Any market research that focuses on the uncontrollable factors such as culture, government, economy, religion, innovation, competitors, and demographics in the country in which it’s starting to operate is known as an international marketing research (Davidson & Worrell, 1994).

Financial Performance

A very important role is the performance of the liquidity redistribution and maturity transformation. Liquidity redistribution is the distribution of money throughout the company. Financial intermediaries make cash and credit available to businesses and people who otherwise would not have it available for their operations or plans (Buxton & Gilbert, 2004).

This is an integral part of the implementation of the monetary policy, of which financial intermediaries are an integral part. Regarding the daily operations and their performance, these interventions help business in “operating payment systems and in providing appropriate channels for national and international financial flows, which contribute to the overall development of the company” (Dema & Harwood, 1991).

Non-ESOP Sample Calculations

In order to assess the retirement procedure, there is a need to address the following aspects retirement age, annual income, market value in terms of personal savings and investments, consider the inflation over years, and contribute a pension plan, including social security administration. In other words, it is possible to assume the age of about 40 years old since this is the time most people start thinking about their retirement. The overall income is about $45, 000 a year, the acceptable retirement age is 65 years old.
In addition, there are about $50, 000 in savings and $50, 000 more in investments. The difference would comprise 25 years with accepted annual rate of inflation of 6%. The approximate social security benefit would be $15, 600 for the yearly retirement plan. The desired retirement planning calculations consider the sum of $40, 000 a year in order to sustain the same level of living in the retirement age.

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Considering the current monthly income, the retirement amount would be around $2, 000 per month. Thus, the approximate retirement would total about $24, 000 during a year. If considered the inflation for these years, the average generated money for retirement would be around $400,000, considering the 6% rate of inflation and $24, 000 as a desired sum of retirement money.

If considered the sum of $400,000 this could be not enough to sustain the future goals since there are more aspects to have in mind. Every sum of money is going through the tax system, and if to consider the inflation rate other than about 6% it would be even less money to manage the future objectives. Moreover, there are many unpredictable aspects to bear in mind for the future, the most important of them are health conditions and possible expenses in the future that are unexpected today. Therefore, this should increase the number of saving to $600, 000.

At the same time, the retirement age could also be different, and it is possible to admit that there is enough time to plan before the retirement age. The same pertains to the years of life, it is not possible to predict the events, but it is quite possible to prolong the lifetime with proper life conditions and care for the future. The idea is to constantly review the estimations and update the changes in the retirement plan.

Besides, the data for the asset allocation in the retirement calculator indicates the importance to invest in the following allocations 15% in bonds, 45% in large cap stocks, 20% in small cap stocks, and 20% more in the foreign stocks. Therefore, it is also important to consider these aspects of investment in order to add to the estimated average of the retirement planning fund. Thus, the outcomes of the retirement calculator as well as the individual calculations on the retirement age offer the sum of about $800, 000.

Opposite Viewpoints Towards Retirement Risk Management and Investment Strategies

The risk management of the retirement age is quite a heavy thing to think about due to the recent financial crisis that threatens the capital markets, global economy, as well as the safety of retirement planning. Today, there are different programs that help sustain the payments and financial risks, though there is a great risk of retirement management due to the overall economic instability in the world (Nancy, 2010).

It appears that the most respected and trusted way to keep oneself afloat is personal strategy of generating income along with managing it effectively towards financial programs, which help both to invest in retirement saving programs and remain sustainable within the current decade. In order to manage the risk effectively, it is important to split the income with the help of different risk management programs that could help remain sustainable in the future period of retirement (McHugh, Cutcher-Gershenfeld & Bridge, 2005).

In other words, people should always mind the possible risk factors such as longevity risk, inflation and interest rates, stock market and financial crisis, employment, healthcare, and many other unexpected risk factors. Thus, in case of effective management of the retirement planning, the risk and return issues would go to a minimum (Katz, 2005).

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In order to increase the longevity period one could think about a special approach to one’s health in terms of nutrition and any physical activity. The risks of inflation as well as the interest rates, stock market and financial crisis are not possible to envision, though it is always possible to retire an additional amount of money; usually, 20% of the total retirement sum of money is enough to cover the difference (Hallock, Salazar & Venneman, 2003).

The same is for the specific risks that are associated with the asset classes, for example, employment and/or healthcare. They have a tremendous impact on the level of assets as well as on the retirement planning. In order to predict such risks, it is important to plan the employment according to the inner feelings and beliefs that define the scope of productivity and most often result in the better income (Employee ownership foundation, 2009).

The other unexpected risk factors are even more difficult to predict, though, the minimum that could be done is the same 20% of the total retirement sum of money to be added to the overall plan for retirement. In fact, there are different kinds of programs to manage possible risks in terms of insurance, healthcare, and other independent support programs. The most important of them are IRA, Roth IRA, and 401(k) (Buxton & Gilbert, 2004).

The Individual Retirement Account (IRA) is considered to be one of the governmental programs that offer retirement advantages programs that helps people tackle tax system and, at the same time, keep their savings safe. IRA is a form of a social benefit that people use in order to have numerous benefits in terms of taxes or allowance (Adamson, 1993).

People trust it all over the United States since IRA holds almost 25% of nations’ assets. The asset categories that are encompassed through IRA are equities, bonds, money, balanced funds and other annuities. The Roth IRA is about the same individual retirement arrangement with a slightly different plan of retirement that consists of more benefits in terms of taxes and other privileges for the American citizens (Buxton & Gilbert, 2004).

The most important aspect of Roth IRA is that it does not require people to pay taxes. However, the negative aspect of it is that the amount of savings is not that much for the adequate retirement plan. It also allows participating in different investment operations with securities, stocks and bonds, though this is a personalized retirement annuity (Carlson, 2009).

There is a different account named as 401(k) account, which implies the United States tax retirement plan. It also has limits in terms of annual expenditure of not more than $18, 000. The money is supported by the tax-overdue system that helps managing funds in terms of payment issues. In other words, it works as if it is deducted from the income in advance of taxes; however, the taxes are applied afterwards when there is a need to use the funds through the 401(k) account (Employee ownership foundation, 2009).

Performance, Productivity and Profitability

Important incexes to be defines (Pugh, Jahera & Oswald, 2005):

  • Accuracy of planning the workflow and possible improvements;
  • Number of actions planned per day;
  • Number of clients to serve;
  • Time to serve one client;
  • Number of served returned clients a day;
  • Reasons why the customers made another purchase;
  • 20 / 80 plan for actions, which bring the most returns;
  • Innovations and improvements.

Such data should be collected every day and planned to be so until the employees learn to follow the procedure without interference from the top management. The processes as follows one 5 minute check of each member of the department every day and one 15 minute check and planning with the manager of the department. Such information should be informed at first in person, then over the emails and over the phone. Therefore, the above strategy will help improve the overall performance management productivity (Nancy, 2010).


The employee stock ownership plans (ESOPs) could be perceived as the eligible retirement plans that are created to help people capitalize principally into the business confidence. Discharged from the broadening requests that are complementary to the other retirement plans put ESOP in the position to invest at ease and with a hundred percent safety of the company securities. In all, the ESOPs are recognized by various motives (Hallock, Salazar & Venneman, 2003).

The overall idea of the ESOP planning is aimed at improvements in the performance of the companies. Earlier it was mentioned that the examination of such an approach is still dual as per the outcomes. Therefore, such kind of planning works best for the short-term productivity improvement planning and at the same time has diverse position towards the long-term perspective among the half of the respondent companies (Davidson & Worrell, 1994).

At the same time, the research has shown that it is vitally important to proceed with the retirement planning in the youngest years. The calculations of a particular case examine the procedure in detail along with the analysis of the retirement risk management and investment strategies such as IRA, Roth IRA, and 401(k). The allocation of assets was taken into consideration along with the financial investment approaches and acceptable risk factors.

The paper also covered the analysis of the retirement planning based on particular examples of evaluation of the return issues, including risk management and retirement planning rationale. The assessment addressed the investment strategies and alternative risk factors with implications on the retirement plans such as IRA, Roth IRA and 401(k).

In parallel, the ESOP plan offers a great advantage for both the owners of the companies as well as for the employees. The overall idea is to maintain wealth and prosperity of the companies on the world market. However, in the world of today the companies are testing whether the ESOP planning can help the companies result with the desired outcomes (Dema & Harwood, 1991).

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