Employee Stock Ownership Plans: An Analysis of Current Reform Proposals

This article surveys the battle between the critics and advocates of the ESOP, and scrutinizes various proposals currently being considered in the legislative arena. Part I examines the philosophy and history of the ESOP, particularly focusing upon the conceptual foundations provided by the writings of Louis Kelso. Part II explicates the various functions performed by the ESOP: as a tool of corporate finance, as an “in-house” market for the sale of stock held by a company’s shareholders, and as a means of obtaining additional investment tax credit. Part III analyzes critically six proposed improvements of the ESOP system from both the General Accounting Office’s Report and the proposed ESOP Improvements Act. This Part concludes that while each of the six proposals has some merit, the effectiveness of the proposals is limited by their failure to deal with more than the tax aspects of the ESOP controversy.