Employee Share Ownership Trust - ESOT

DEFINITION of 'Employee Share Ownership Trust - ESOT'

A program that facilitates the acquisition and distribution of a company's shares to its employees. ESOTs are trust accounts through which a company can sell its shares to employees. Employee share ownership is supposed to boost employee morale and improve employee incentives to work hard and make decisions that are in the company's best interests. Such an arrangement thus helps to align the interests of company employees with those of other shareholders.

BREAKING DOWN 'Employee Share Ownership Trust - ESOT'

Some reasons for a company to provide an ESOT include the following:

1. the ability for the company to test out how an employee share ownership plan would work
2. the creation of a mini market for the transference of a company's stock, which allows the company to obtain funds efficiently and educate its employees in share ownership
3. the provision of a tax incentive to shareholders should they decide to sell their shares in the company back to the company's ESOT