As Indiana economic development leaders continue the focus on keeping businesses in-state, some are pointing to employee ownership as a means to help facilitate this objective. Consequently, employee stock ownership plans (ESOPs) are now being regarded as not just a method to motivate employees, but also a way to prevent businesses from transferring ownership outside of Indiana.
An ESOP is an employee benefit plan that turns employees into stock owners of their company. In an ESOP, a company sets up a trust fund into which it contributes new shares of its own stock or cash to buy existing shares. According to the National Center for Employee Ownership’s web site, ‘the ESOP can also borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan. Regardless of how the plan acquires stock, company contributions to the trust are tax-deductible, within certain limits.’
Richard Mourdock, Indiana state treasurer, says ESOPs are structured so the entire staff of a company benefits.
‘Each year when a company is profitable, the board of directors or ESOP trustees determine how much of the profit is used to pay off ESOP debt and how much is used to buy employee stock,’ he reports. ‘It’s based on a percentage of payroll per person, so there’s a formula in place so it’s not just the top employers who get all the stock.’