Leveraged Employee Stock Ownership Plan - LESOP

AAA

DEFINITION of 'Leveraged Employee Stock Ownership Plan - LESOP'

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 'Leveraged Employee Stock Ownership Plan - LESOP'

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.

RELATED TERMS
  1. Cafeteria Plan

    An employee benefit plan that allows staff to choose from a variety ...
  2. Employee Stock Ownership Plan - ...

    A qualified, defined contribution, employee benefit (ERISA) plan ...
  3. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  4. Defined-Contribution Plan

    A retirement plan in which a certain amount or percentage of ...
  5. Corporate Pension Plan

    A formal arrangement between a company and its employees - or ...
  6. Civil Rights Act of 1964

    Landmark federal legislation that prohibits discrimination on ...
Related Articles
  1. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  2. Options & Futures

    A New Approach To Equity Compensation

    The new financial accounting standard known as FAS 123R could take a bite out of your portfolio. Find out why here.
  3. Investing

    How To Evaluate Pension Risk By Analyzing Annual Costs

    Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate.
  4. Active Trading Fundamentals

    What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity risk.
  5. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.
  6. Investing Basics

    Enterprise Resource Planning System: A How To

    An ERP system won’t transform poor management into good management, but the real-time business analytics can help make good management even better.
  7. Mutual Funds & ETFs

    How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading strategies.
  8. Professionals

    What's the average salary of a bank teller?

    Read this article to find out more about average bank teller salaries, median hourly wage rates and potential future career prospects.
  9. Investing Basics

    How To Calculate Goodwill

    Goodwill is an intangible, but it is still possible to effectively calculate or estimate goodwill for a company.
  10. Professionals

    What's the average salary of a business operations manager?

    Read about the average yearly salary of business operations managers, and find out which locations and industries offer the best pay for these professionals.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center