Leveraged Employee Stock Ownership Plan - LESOP

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DEFINITION

An equity compensation system in which the sponsoring company typically leverages its credit to borrow money, which it then uses to fund the plan, in order to purchase company shares from the company's treasury. The shares are used for the purposes of the stock ownership plan, and the company pays back the original loan with annual contributions.

INVESTOPEDIA EXPLAINS

Typically, companies choose to use stock ownership plans or equity compensation systems in order to tie a portion of their employees' interests to the bottom-line share price performance of the company's stock. In this way, all employees who participate in the plan have an incentive to make sure the company's operations run as smoothly as possible. By leveraging the company's assets to fuel a LESOP plan, the business is able to provide for its stock ownership plan without immediately putting up all the capital required to do so.


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