There are plenty of third-party companies you can approach to simplify this process such as:
But before you choose one of these we are going to break it down to the basics.
This employee benefit plan gives employees part ownership of the company through stocks. Portions of the company’s profit are shared with employees through this, providing an incentive to be productive and engaging the employee with the business even more. ESOPs are not ideal for companies which have a higher rate of employee turnover, as it is designed to benefit long-term working employees.
ESOPs are included in an employee’s remuneration package and keep them invested in the company's overall performance. Employees are motivated to see the share price perform well, and therefore intended to motivate them to be productive, achieve and act accordingly to stakeholder interests, as they themselves are stakeholders. This is a way for them to get more monetary compensation, and essentially makes them feel rewarded for their hard work and commitment to the company
These plans are often presented with no upfront costs to your employee. The company holds and manages the shares on their behalf almost like a trust fund, for their safety and growth. These shares are handed over to the employees if the employee resigns or retires, and the company will repurchase the shares. The bought-back shares will either then be redistributed or voided.
An example of an ESOP might be a company offering 10% of its shares to employees through the plan. If the company is valued at $10 million and offers 1 million shares, then 100,000 shares would be allocated to the ESOP. If there are 100 employees, then each would receive 1,000 shares. If the share price increases to $15, then each employee would have $15,000 worth of shares in the ESOP. This would be in addition to any salary or other benefits they receive from the company.
When can you cash out?
Employees can typically cash out their ESOP shares when they retire, resign, become disabled, or pass away. However, some plans may allow for earlier distribution under certain circumstances, such as financial hardship or a change in control of the company. It's important to review the specific terms of an ESOP plan to understand the rules for distribution and any potential tax implications.