please search the web for the information on employees stock ownership plans regarding some of the...

please search the web for the information on employees stock ownership plans regarding some of the pitfalls. Please provide 4 references.

Expert Solution

The following are the pitfalls of ESOP

1) HIgh Expenses

ESOPs are considered to be costly to administer and a complex instrument. The expenditure increases with joining of new employee and the retirement of old employees whose dues are to be settled.

2) Legal liability

ESOPs create legal liability if it fails. It creates significant risk for the trustees in case of failures.

3) No reverse turning

The participants in ESOP have significant voting rights. They can vote against a favorable opportunity for business. Getting new finance also becomes problematic as new investors would not like to get their equity diluted through ESOP and they like to refrain themselves in case of lawsuits involved in ESOP transactions.

4) Drainage of productive resources of the firm

The fees and purchase obligation of ESOP leaves less cash with the company which can be invested in new ventures. New profitable opportunities gets avoided due to expenditure of ESOPs. the cash flow which can be invested in growth and innovations gets strained due to funding ESOPs.

jeff jeffy answered 1 year ago

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