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Lesson 12. Options and the Private Compa... > Employee Stock Purchase Plans - Pg. 57

Options and the Private Company 57 Employee Stock Purchase Plans Employee stock purchase plans, also known as section 423 plans for the applicable tax code, are another way to reward employees and compensate them with stock. These plans are often favored over stock options by closely held companies for their ease of ad- ministration and the benefits they provide to employees. I cover these plans in more detail in Lesson 13. Another alternative that accomplishes some of the same goals, but in a different environment, is the employee stock ownership plan or ESOP. ESOPs are very different in structure from the other plans in this book. I discuss ESOPs in Lesson 14, "Employee Stock Ownership Plans." Plain English An ESOP (employee stock ownership plan) is a qualified retirement plan that provides a way for an owner to sell the company to its employees. Stock Appreciation Rights Stock appreciation rights (SARs) are another popular alternative for closely held companies. Pub- licly traded companies use SARs also, but private companies use them more often. The main reason private companies use SARs is that they have fewer alternatives. Public companies generally prefer options because they are easier to administer and are more familiar to employees than SARs. A close cousin to SARs is phantom stock, which is another way of rewarding employees by allowing participation in the economic future of the company. Both SARs and phantom stock are programs designed to accomplish many of the same goals as