An ESOP, or an Employee Stock Ownership Plan, is a defined contribution plan, which is a particular form of a retirement plan as defined by the IRS. As a qualified stock bonus plan, an ESOP became a qualified retirement plan in 1974 under IRS code 4975(e)(7). This employee-owner plan allows for a company's employees to gain an ownership interest in the company while continuing to carry out their day-to-day work. Companies can opt to provide their employees with stock ownership through the use of an ESOP; ESOP shares then form a portion of the employee's remuneration.

Two-thirds of ESOPs are utilized upon the departure of an owner of a profitable company, while the majority of the remainder of ESOPs are used for employee benefits or as a tax-beneficial means to borrow money. A 2000 Rutgers study found that companies who distribute ESOP plans to their employees experience a 2.3% to 2.4% surge in growth afterwards, due to significant gains in employee performances. With some exceptions, all full-time employees over the age of 21 can gain the benefits of an ESOP.

Employees who opt to utilize their ESOPs as a retirement plan have three times the retirement funds or assets employees working for non-ESOP companies do, according to study conducted in Washington state in 1997. The same study found that ESOP participants also made significantly more in wages, between 5% and 12% more than their non-ESOP counterparts. ESOPs are often paired with additional retirement plans; up to 56% of companies offering ESOPs also offer at least one additional qualified retirement plan for their employees.