Employee Stock Ownership Plans:

Benefits and Costs of ESOP Tax Incentives for Broadening Stock Ownership

PEMD-87-8: Published: Dec 29, 1986. Publicly Released: Dec 29, 1986.

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In response to a congressional request, GAO provided information on employee stock ownership plans (ESOP), specifically: (1) the number of ESOP and the number of participants they covered; (2) the value of assets in ESOP trusts; (3) the factors associated with company decisions to establish and continue ESOP; (4) the costs of ESOP in terms of federal revenues forgone; and (5) the degree to which ESOP are broadening the ownership of capital assets in the United States.

GAO found that: (1) there were 4,800 ESOP and 2,400 similar stock bonus plans active in the United States as of March 1986; (2) ESOP covered more than 7 million workers and held nearly $19 billion in assets as of 1983; (3) the most common reasons employers established ESOP were to provide benefits to employees, utilize ESOP tax incentives, and improve productivity; (4) employers continue to offer ESOP, since it has improved employee morale and tax savings; (5) tax incentives for ESOP cost an estimated $1.7 billion to $1.9 billion per year, which is $12.1 billion to $13.3 billion over the period 1977 through 1983; (6) the tax costs are high relative to the $19 billion in assets participants have accumulated to date and reflect the dollar-for-dollar tax credits permitted for contributions to some ESOP; and (7) ESOP broaden the degree of capital ownership within sponsoring firms, but the small number of employees they cover and the small percentage of all stock ESOP trusts hold limit the extent of overall expansion of capital ownership associated with ESOP.

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