What is the primary purpose of an Employee Stock Ownership Plan (ESOP)?

The primary purpose of an Employee Stock Ownership Plan (ESOP) is to offer employees an ownership interest in the company. This type of plan allows employees to acquire shares of the company, often as part of their compensation package. By doing so, it aligns the interests of the employees with those of the company and its shareholders, fostering a sense of ownership and encouraging employees to contribute positively to the company's success. Employees are likely to be more motivated and productive when they have a financial stake in the company’s performance.

While reducing company taxes is a potential benefit of an ESOP, as contributions made to the plan can be tax-deductible, this is not the primary purpose. Similarly, while an ESOP may contribute to the overall financial health of a company, increasing profits is not its direct aim; rather, it is a potential outcome. Lastly, while the plan could lead to improvements in employee compensation indirectly through company success, it does not specifically aim to offer salary increases. The central focus of an ESOP is to give employees an active interest in the ownership of the organization.