The company must also set aside money to repurchase stock when employees leave. J. Michael Keeling, president of The ESOP Association in Washington, D.C., says the number of ESOPs has increased dramatically in 20 years from about 2,000 plans in 1976 to an estimated 10,000 plans representing 10 million employees in 1996. Keeling's association has 1,250 corporate members. About 90 percent of ESOPs are in privately held companies, and 10 percent are in publicly traded companies. Employees own a majority or all the stock in about 2,000 ESOPs, he says.
Most employers use ESOPs as a financial or benefits tool.
Where the plans are used to promote cultural change, employees typically own more than 50 percent of the stock. When a company repays an ESOP loan, both the principal contributions and interest payments are tax deductible. Privately held companies are more likely to use ESOPs to develop an ownership culture. In these workplaces, the plans create a marketplace for owners to sell all or part of a company to the employees for retirement or tax purposes. Conveying the information needed to successfully implement an ESOP and build an ownership culture falls primarily to human resource professionals.