employee stock ownership plan (ESOP)

Employee benefit scheme intended to motivate employees by giving them a stake in the firm's success through equity participation. Purchase of shares by employees is funded by a loan (usually from a bank) guaranteed by the employer. This plan costs little or nothing to the employer because the loan principal is paid-off from the dividend payment to the employees, and the loan interest is a tax-deductible expense. Moreover, this plan raises the firm's capital to asset ratio by bringing in capital from new stock issue (share issue). See also employee profit sharing plan (ESPS).