Employee Stock Ownership Plans (ESOP) Essay Example | Topics and Well Written Essays - 1000 words

Employee Stock Ownership Plans (ESOP) - Essay Example It is governed by ERISA (Employee Retirement Income Security Act). A stock option gives an employees of an organisation the right to buy shares at a price fixed (usually the market price, but sometimes lower) for a defined number of years into the future. Several options such as those based on the percentage of pay basis, a merit formula, an equal basis, or any other formula the company chooses might be granted (NCEO, 2005). According to the US Securities and Exchange Commission "an employee stock ownership plan (ESOP) is a retirement plan in which the company contributes its stock to the plan for the benefit of the company's employees" (SEC). ESOPs were given a specific statutory framework in 1974. (NCEO, 2005) and through the plan employees are allowed to own stock in their companies without having to purchase shares (Employee Stock). ESOPs are generally more common among closely held companies and are usually created when a retiring owner wants to transfer ownership of the company to one or more employees (Employee Stock). Similar to other quali fied deferred compensation plans, a company's ESOPs must not discriminate in their operations in favour of highly compensated employees, officers, or owners (NCEO, 2005). To achieve this, companies are required by law to appoint a trustee to act as the ESOP's plan fiduciary. This fiduciary could be anyone, while larger companies tend to appoint external trust institutions; smaller companies typically appoint a manager or create an ESOP trust committee. (NCEO, 2005) In setting up an ESOP, a company first approaches a lender to borrow money; this is known as a "leveraged" ESOP. In this approach, the company first sets up a trust, which then borrows money from a lending institution. The company then repays the loan by making tax-deductible contributions to the trust, which the trust gives to the lender. The loan however must and can only be used by the trust to acquire stock in the company. Benefits of ESOP's. The objective of most stock option plans is providing a kind of investment for employees so they also can become part owners of a company. It has been observed that companies with employee-owners often boast higher productivity and increased employee loyalty, longevity and satisfaction. This is due to the fact that the employees are indeed co-owners of the companies and this is translated into benefits such as: efficiency and productivity. According to management experts the best way to make employees owners is to give them shares in the company rather than asking them to pay for their shares. Another advantage of the ESOP is that it costs the employees nothing to co-own the company and after employees leave the company or retire, the company distributes to them the stock purchased on their behalf, or its cash value (NCEO, 2005). In return for agreeing to funnel the loan through the ESOP, the company can save money through a number tax is deferments until the employee retires (Employee Stock). This is done in a number of ways: First, the company can deduct the entire loan contribution it makes to the ESOP, within certain payroll-based limits as allowed by law. This means that a company can in effect deduct both interest and principal on the loan, not just interest. Secondly, the company can also deduct dividends paid on the shares acquired with the proceeds of the loan that are used to repay the loan itself (in other words, the earnings of the stock

Word-of-Mouth to Marketing Essay Example | Topics and Well Written Essays - 2000 words

Word-of-Mouth to Marketing - Essay Example Today word-of-mouth marketing includes several categories of communication such as buzz, blogs, and viral marketing where Internet communities and other interactive social media are utilised for word-of-mouth marketing. Influencer marketing is another form of word-of-mouth marketing wherein personalities who are believed to be highly influential over the target audience are made use of for promotion of products and services. Word-of-mouth marketing has gained a great deal of importance as a marketing technique due to its effectiveness, which in turn is due to its credibility. This is because word-of-mouth communication is considered to be honest and without any selfish motive. This credibility is what is made use of by marketers who use the technique of the word of mouth. People usually ask other people like their friends, family, colleagues and others, whom they trust, when they decide to purchase something and before they begin to look for what brand or label to buy. Word-of-mouth marketing is actually "giving people a reason to talk about your stuff, and making it easier for that conversation to take place" (Sernovitz, 2006, p.3). As simply put by Sernovitz (2006, p.3), "it is everything you can do to get people talking." People are more often than not buying a product not in response to the marketing campaigns of the product, but in response to what other people may be talking about the product. Research shows that people gather information from marketing materials and then talk the products over with their friends, family or other close associates. Then they make a decision about buying the product in response to what others say about the product (Silverman, 2001, p.6). Hence marketers have realized that the best way to increase sales of their products is by getting the customers to sell them. Word-of-mouth communication is now the focal point of marketing and the most effective method for sales promotion. Another factor that increases the significance of the word of mouth is that we are now in the information age where we are overwhelmed with more information than we can handle. This, in addition to busy schedules, leaves no time for extensive research, investigation and deliberation. Hence traditional advertising is on the decline and the word of mouth has become a necessary time saver (Silverman, 2001, p.10). Impact of the word of mouth in marketing There are several factors that render the word of mouth very powerful and effective. The most significant factor is that the word-of-mouth communication can be very influential and can persuade a prospective buyer to buy a product. Another factor is that the word of mouth communication is based on personal experience and therefore the possibility of expected result is very high. The independent nature of the word-of-mouth communication makes it more credible. Besides, while word-of-mouth communication is custom-made, relevant and complete, it is self-generating and self-breeding, growing exponentially and sometimes explosively (Silverman, 2001, p.37). It has unlimited speed and scope, and is "very inexpensive to stimulate, amplify and sustain" (Silverman, 2001, p.37). Word-of-mouth co