What is ESOP?

An employee stock ownership plan (ESOP) is a type of retirement plan that is designed to invest in the stock of the sponsoring company. ESOPs are a form of defined contribution plan, which means that the contributions and benefits are fixed and known in advance.

ESOPs are established by companies as a way to provide a financial benefit to their employees. Employees who participate in an ESOP typically receive company stock as a contribution to their retirement account, and the value of the stock is based on the company's performance. In addition to providing retirement benefits, ESOPs can also be used as a tool to align the interests of employees and shareholders, as both groups have a stake in the company's success.