ESOPs are a wonderful addition to all companies, as they allow companies and their employees to grow and reap the benefits of dedication and hard work. Over 46,000 people participated in ESOPs in 2019.
Because ESOPs seem to lead to employee satisfaction, especially when the shares are large, it’s a benefit that more companies should start investing in. Almost every company is right for an ESOP, and it can only benefit the employees who are eligible for it. Here’s what a company needs to do to start considering whether offering tokenized ESOPs are the right move.
What Is an ESOP?
An employee stock ownership plan (ESOP) helps an employee of a certain company feel like they’re working toward their own future. Thanks to an employee’s unmatched work ethic, they can earn stock in the company, either as a supplement to their regular income or in place of some pay. As they will technically own a share in the company, they may feel more attached to the company.
ESOPs work in complex ways. They can receive their share of the value of the stock as cash or another form of payout, but it’s also an unbelievably great way to help an employee save for retirement. Upon leaving the company, the employee will take only a portion of the ESOP – and they will owe taxes on what they take out.
The rest is turned over to the company to do with as they see fit. Though people may not stay at a company until retirement, they have options to keep their earnings with them, wherever they go.
Tokenized ESOPs are different in that they allow employees to trade their vested options in the company on authorized cryptocurrency exchanges.
Benefits of Offering Tokenized ESOPs
Each company has to consider whether certain programs are suitable for it. ESOPs can provide several benefits for both companies and employees, and they can be quite an alluring draw to new employees and ones that have worked loyally at a company for several years.
Some companies may choose to enact the program based on how long an employee has worked there, but over time, that company can involve all its employees, no matter how long they’ve worked with the company.
1. Own a Piece of the Company
By allowing their employees to have some ownership in a company’s stock, they’ll likely feel like they are part of the company and might push themselves to do more for the company. ESOP participants may consider their work directly tied to the company’s success, and they may want to see it flourish if they have stock in the company. Taking part in an ESOP is their way of feeling like they own part of the company.
2. More Tax Benefits for Employees and the Company
The contributions that companies make to individuals’ ESOPs are tax-deductible, meaning they’re doing a service to their employees’ futures while also helping themselves out.
Employees who withdraw their funds will be subject to taxes, but even after they leave the company, they can roll the funds over to an individual retirement account (IRA). An ESOP can encourage employees to stick around to accrue more money, just as the program can help the company offer more money to help its employees.
3. Built-In Retirement Plan
ESOPs work as a built-in retirement plan. Some companies may choose to give ESOPs simply in the form of stocks, while others may plan to place the funds in a trust that will sit there until they’re ready to retire. If an employee with an ESOP chooses to leave the company, they can work with the company to allocate those funds elsewhere.
This cushion can help people have some sort of retirement funds. Nearly 80% of all people have an IRA for their retirement funds, so adding this program should help them save more money for their futures.
Tokenized ESOPs Can Change the Workplace
When people think that they’ll receive better incentives for better work, they’ll work harder. ESOPs are an excellent way for companies to incentivize hard work and reward their employees for a job well done.
Plus, it can contribute to an employee’s future and help them see what they’re working toward. It could be an excellent program for almost any company, so long as it’s a good fit with the culture and the company’s long-term plans.
Devin Partida writes about investor technologies, big data and apps. She is also the Editor-in-Chief of ReHack.com.