The Advantages of Employee Stock Options - eHow.com, By Debbie Donner,

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An Employee Stock Option Plan (ESOP) is a qualified retirement plan being offered to employees by a growing number of companies as of 2011. ESOPs have been around since 1974 and can be compared in structure, to profit-sharing or 401k plans. One of the beliefs about the advantages of employee stock options is that they have the potential to increase a company's competitive edge, because employees are more invested in the company's success.

ESOPs
In contrast to a 401k plan, in which investments may be numerous and diversified, Employee Stock Option Plans are unique, in that they are required by law to invest mainly in the stocks of the sponsoring employer. An ESOP is set up by a company in a trust fund, as a deferred compensation plan for employees, with each employee's account receiving a portion of the shares of company stock. Funding for employee stock options can be done through the company contributing cash or its own stock shares (non-leveraged plan), or the company can borrow money used by the trust to purchase the company's stock (leveraged plan). Typically, an employee's shares are gradually vested (complete ownership) and are cashed out once the employee retires or leaves the company.
Uses
An ESOP can be used to market company stock, boost a company's cash flow and finance the growth of a company, while owners of the company maintain all operating control of the business no matter how many shares an Employee Stock Option Plan owns. An ESOP can also be used to purchase the shares of a departing or retiring company owner, by making cash contributions to the ESOP trust fund or having the trust borrow money to buy the shares. Through implementation of an ESOP, a company ensures that its ownership remains in the hands of those who care most about its success.
Taxes
One of the primary advantages of employee stock options is the significant tax benefits for the company and its employees. Company benefits include tax-deductible principal and interest payments on ESOP-obtained loans, which can cut a company's corporate financing costs by a third. Contributions of stock or cash to the ESOP trust fund are tax-deductible, as well as contributions made to repay ESOP-obtained loans taken to buy existing shares, treasury shares (shares available for resale or retirement) or new shares. Participating ESOP employees enjoy tax-sheltered accounts until withdrawing their benefits, usually upon retiring.
Employees
Privately-held, "highly participative" employee-owned companies like Panel Processing in Alpena, Michigan, have shown an increased growth rate of 8 to 11 percent per year after putting an ESOP into action. Advantages of employee stock options as benefit plans have included use as a vehicle to save some companies from going under, by securing capital in the community by way of employee ownership. Approximately 300 companies in the United States have averted considerable job losses or shutdowns by allowing the employees to buy the company through an ESOP.