February 3, 2026

ESOP Boot Camp, Part 1: What Is an ESOP? How Employee Ownership Actually Works

What exactly is an Employee Stock Ownership Plan—and how does employee ownership actually work?

In this ESOP Boot Camp episode of ESOP Radio, Trevor Gilmore, CEO of Menke, and Ben Spadt, ESOP Investment Banking Consultant at Menke, provide a clear, plain-English introduction to ESOP fundamentals.

This episode is designed as a starting point for business owners and executives who want to understand how ESOPs function before evaluating feasibility, transaction structure, or long-term planning considerations.

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Video Transcript

Introduction to ESOP Radio and ESOP Boot Camp

Hi everyone, welcome to ESOP Radio.

Thanks for joining episode one of the Esop Boot Camp.

Our goal is to give you the owner, CEO,

or CFO of a successful business.

The lowdown on Esops

in a quick, straightforward method because your time is valuable.

I’m Trevor Gilmore, CEO of Menke.

And I’m Ben Spadt.

Investment banking with Menke.

Since 1974,

Menke has been a full service Esop advisor.

And we’ve seen it all from, you know, capital raisings to structuring esops,

regulatory compliance to calculations of value and mergers and acquisitions.

We’ve created thousands of esops.

And as an Esop ourselves, we’re Esop native.

Our first episode.

What is an ESOP? Defining employee ownership

What is an Esop?

Well, demystify what this four letter acronym really is.

And guess what? It’s not Aesop’s Fables.

We will answer three questions a day.

Number one, what is an Esop?

Number two, how do Esops differ from M&A,

meaning mergers and acquisitions and private equity?

And number three, why do Esops exist in the first place?

All right, Ben, let’s dive in.

Absolutely.

So first and foremost, you know, let’s define Esop.

The letters Esop stands for employee stock ownership plan.

And in essence, it’s a qualified retirement plan much like a 401 K.

ESOPs as qualified retirement plans

So the IRS and the Department of Labor,

keep tabs on on what’s happening with that plan.

In 1974, under a Rissa

which governs all retirement plans,

a law was created that made, modern U.S.

retirement plans legal.

So the 401 K, for instance, and Esops,

Esops are essentially an owner of the company.

ESOP trusts and fair market value

It’s a trust that, acts on behalf

of the individuals or the employees in, in the plan.

And it can own anywhere from 1% to 100% of the company.

We’ve seen them all across the board.

They are a fair market value buyer of the company.

And by fair market value, we mean the IRS definition,

which means willing and able buyer, willing and able seller

that negotiate for a price based on financial fundamentals.

In other words, it’s rooted in reality.

Sometimes you’ll read in the paper people,

companies buying companies for a ten x multiple or 12 x multiple.

Those are more strategic buyers.

And, you know, fair market value is a component of that.

But they’re saying you’re worth extra because of some strategic, objective.

So esops buy at fair market value.

And it’s really

the only qualified retirement plan that can be leveraged or can borrow money.

How ESOPs use leverage to buy companies

And that’s where the fun begins. Really.

So with that, the esops can be used

to cash out owners of small to medium sized companies.

Think roughly around 30 plus employees.

We have clients that have, you know, that 30

employee threshold all the way up to 10,000.

And so that’s Esop in a nutshell.

ESOPs compared to M&A and private equity

But, Trevor, do you want to talk about how esops differ from things like M&A.

They expand? Yeah.

And definitely more on value later for sure.

A lot to uncover there.

You’ll see in a future episode

we’ll cover cash flows and, you know, value and all that good stuff.

I’ll now cover how Esops differ from M&A, private equity or gifting stock.

There’s eight key points here.

Number one, Esops are a buyer of your company.

Number two, so are acquirers including private equity.

So when I mean acquirers I mean it could be a competitor.

It could be a private equity firm.

It could be in a, company

that is in a completely different industry but wants exposure to you.

Your brand and your clients.

So the Esau

fits into that category as an acquirer.

Number three Esops allow the company

Independence, culture, and employee rewards

to remain independent and reward employees.

Compare that to M&A or private equity.

If you go down either those routes, meaning M&A or private equity,

your company will not remain independent as it is today.

That is a big distinction.

The question to answer,

which we like to ask, all of our prospects here.

Is your company better off independent or part of a bigger player?

Do you have a large moat?

If the answer is yes, an Esop might be compelling.

Number four, how could in Esop buy my company?

And the answer has been alluded to earlier is leverage.

Technically, the company’s cash flows are used to guarantee the Esop.

And that’s how the whole Esop thing works.

Think company cash flows at both times.

The value it ties to making the whole thing work.

Financing options for ESOP transactions

There are two main financing options out there for Esops,

which is bank or seller financing.

And that’s very similar to what we see in the M&A and private equity world.

And we’ll cover those in a future episode.

Number five,

Tax advantages unique to ESOPs

Esops usually have more tax benefits than a third party sell.

The ability for the seller to defer capital gains permanently

and for the company to operate tax free.

So those are two big things that are unique to Esops.

We’ll cover this in a future episode as well.

And number six, you can see involved with the company after selling to an Esop.

Owner involvement after selling to an ESOP

So we see this with our client base, founder

or maybe it’s the second or third generation owner and so on.

Wants some liquidity.

We set up the SOP, make the whole thing happen,

and they’re still acting as the CEO of the company and

probably on the board as well as there’s no requirement that you must exit.

If you compare that to a third party SEL,

meaning it mergers, acquisitions or private equity,

you will likely one out after a few months because

you have a new overlord in essence, that is dictating a lot of things.

Company is not independent anymore.

So you talk to friends, you know, out there who have gone down

that path and more often than not, they will tell you, hey, I stuck around

for the minimum amount of time to get my earnout and then I was done.

Esop is not going to have that same outcome.

A lot of flexibility there.

Hybrid ESOP and private equity structures

And number

seven, one recent trend we’re seeing is a structure where esops

come in and buy a minority stake, meaning less than 50%

in a private equity firm or a family office,

which basically is a family that has a ton of money and,

creates a

and investment arm with professionals that basically go out and buy companies

according to their family’s investment thesis, buying the controlling stake.

So we are seeing more of these hybrid.

So it’s not either or.

Whereas the prior points were kind of saying either

or we are seeing this hybrid or we have an Esop minority

shareholder and a control.

Interest held by the PE or the family office.

ESOPs are not gifting stock to employees

And lastly, number eight, do not confuse Esops with gifting stock to employees.

Some people say that I’ll talk to a prospect and they’ll say, oh,

if I go Esop, I’m just giving the employees the company,

you know, and so on.

And that is not, you know,

rooted in any sort of reality.

Esop is a qualified retirement plan,

and employees must work smart and hard to earn it.

The stock is allocated over a long period of time

in your gifting the stock to the employees.

They have to work hard for it and also the future Esop value

is reflected in that reality.

Yeah.

So Ben covered eight points here about the key distinctions between esops,

mergers, acquisitions and private equity.

It’s going to kick it over to you.

And you can cover why Esops exists in the first place.

Why ESOPs exist in the first place

Yeah, I love those examples.

Those eight points that you made and and truly, you know, Esops exist

because retirement plans like the 401 K can buy

public company stock or bonds, mutual funds, things like that.

But one thing that is excluded are those private company

stock, private company shares, private company stock that you alluded to that

you know, perhaps family offices

want to buy the majority stake, but you can’t really,

utilize your 41K or something like that

to buy companies, private company stock.

So why not let them, private companies use a retirement plan

to acquire shares of the company, provide some or all liquidity

to the owners, and then allow the company to stay independent.

So as you alluded to, you know, there’s, a competitor’s not swooping in and

and buying you up and perhaps changing the way you’re structure,

changing the way you, treat your r a p, switch out your board.

You know, things like that, you get to remain independent, remain in control.

And so esops, you know, they were a creative solution to that age old problem.

Solving liquidity, succession, and motivation

Who’s going to buy my company?

And the answer can be and often is employees.

But you know,

the rank and file employees can’t finance the purchase of the business.

And so that’s where the Esop comes in, which can buy the,

you know, some or all of the company

and solve those three things liquidity, succession and motivation.

You know, those employees then own the company, in effect.

And a lot of times we see that,

people treat things that they own better than things that they rent.

And, you know, there’s often the example of the rental car or renting a home.

So, yeah.

When was the last time you wash a rental car?

That’s a unless it was required, I think,

sometimes I know they do require, you know, the doesn’t, but.

Yeah.

So prior to Esop, so there was just kind of a little bit of,

you know, here and there providing ownership to employees.

Trevor. What?

I think there’s one specific example,

but I can’t remember right off the top of my head.

Yeah.

The first ESOP and historical background

So, you know, you go back way back to the 1950s and this is

sort of the the granddaddy of all esops, company was called Peninsula

Newspapers on the San Francisco Peninsula, where Silicon Valley is today.

I think they’re headquartered like, San Mateo, if I recall.

Yeah.

An attorney called Louis Kelso, based in San Francisco.

And he’s actually who our founder started as he saw career with

our founder, John Menke.

They had a

client, Peninsula Newspapers, that

needed a succession plan.

So the overall owner of the company, who had majority control,

said, here, we want to sell the company who best us all to but the employees.

But the employees don’t have their own money.

So how can that happen?

Answer is an Esop.

So that was largely credited with the first Esop out there.

And that happened before Esops became legal.

For you in the code heads out there, esops became legal.

And, what, 1974 Labor Day, 1974.

President Ford signed the RSA legislation making them legal

along with, for one case, you know, and so on.

The modern retirement structure.

Yes, they’re definitely unique.

And, you know, you think retirement plan, this is the only one

Why ESOPs remain unique today

that can use leverage, meaning it can use leverage

in conjunction with the company cash flows to buy the company.

Excellent.

You know, I forget the details on that, but that was a perfect summation.

And, you know, that signing that legislation in 1974

by Gerald Ford was,

you know, did start a massive

trend, back then and to all the way to today,

you know, in a good number of states, there’s an employee ownership,

either center or organization that helps promote employee

ownership and esops, we find that it’s a bipartisan tool.

There’s a lot of good things that are working for us in this industry

and also as a succession tool

to provide you that liquidity and an exit.

Absolutely.

You know, you get skin in the game.

Guess what?

People might have that ownership mentality kick in right now.

That’s what you want right?

You know you don’t want hired hands.

You don’t want someone who doesn’t wash a rental car, right?

You know, you you want that thing gleaming, right.

And performing.

Yeah. So that’s it for episode one.

Key takeaways and closing thoughts

We covered three key things today.

Number one, what is an Esop?

Number two, how do Esops differ from M&A in private equity.

And number three, why do Esops exist in the first place?

Thank you for joining us today.

Connect with us on LinkedIn.

You can find us, Trevor Gilmore, Ben Speight

and also ESOP Radio or our mentee page.

And of course, our website, Mediacom has real life case studies of our clients,

and we post a lot of Esop news on there as well.

Reach out to us to learn more about our Esop fit analysis.

That is the first step in assessing if an Esop is right for you.

Have an awesome day!

Join us for episode two.

Is your company a good Esop candidate?

Take care everyone. Thank you. Bye bye.

What Is ESOP Boot Camp?

ESOP Boot Camp is a foundational series within ESOP Radio created to demystify employee ownership for business owners, executives, and advisors.

Rather than focusing on individual transactions or case studies, the Boot Camp series is designed to build a disciplined understanding of how ESOPs work—step by step—using clear language and real-world context.

This first episode establishes the core concepts that will be expanded on throughout the series.

ESOP Fundamentals Explained

In this episode, Trevor and Ben cover:

- What an ESOP is and how it functions as a qualified retirement plan
- The role of the ESOP trust and fair market value
- How ESOPs use leverage to acquire company shares
- How ESOPs differ from mergers and acquisitions or private equity
- Tax advantages unique to ESOP structures
- Why ESOPs exist as a long-term solution for liquidity, succession, and motivation

The focus is on clarity—not complexity—so listeners can better evaluate whether employee ownership aligns with their objectives.

Why Understanding the Basics Matters

For many business owners, ESOPs are often misunderstood as either overly complex or overly simplistic.

This episode explains:

- What ESOPs are designed to do
- What they are not designed to do
- Why structure, governance, and discipline matter
- How employee ownership fits into long-term business continuity

By grounding the conversation in fundamentals, ESOP Boot Camp helps owners approach employee ownership with realistic expectations and informed questions.

Who Should Start Here

This episode is ideal for:

- Owners new to ESOPs
- CEOs and CFOs exploring succession options
- Advisors seeking a clear ESOP refresher
- Leadership teams beginning early ESOP discussions

If you are looking for a place to start your ESOP education, this episode is the right entry point.

Continue the ESOP Boot Camp Series

This episode is Part 1 of the ESOP Boot Camp series.

Future episodes will explore:

- ESOP transaction financing
- Valuation and trustees
- Governance and fiduciary responsibilities
- Repurchase obligation planning
- Long-term sustainability of employee-owned companies

Next:
ESOP Boot Camp Part 2: Is Your Company a Good ESOP Candidate?

About ESOP Radio

ESOP Radio is the official ESOP podcast from Menke—where real stories of growth, succession, and long-term wealth building are told.

Hosted by Trevor Gilmore, CEO of Menke, and Ben Spadt, ESOP Investment Banking Consultant at Menke, the show features conversations with business owners, executives, and advisors who have navigated employee ownership as a strategic path forward.

Explore more episodes at menke.com/esop-radio.

Interested in Being a Guest?

If you are interested in being a guest on ESOP Radio or would like to suggest a topic, please contact Trevor Gilmore at [email protected].

Disclaimer

This podcast is provided for educational purposes only and does not constitute legal, tax, investment, or fiduciary advice.

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Learn why an ESOP is better for You,
your Business, and your Employees

Upcoming Web Seminar

The ESOP Exit Strategy

Free 90-Minute Webinar for Business Owners, CFOs & Advisors

Learn how ESOPs fuel growth, reduce taxes, and power succession—without giving up control.

Free live webinar · Wednesday, September 30th, 2026 · 10:00–11:30 AM PT / 1:00–2:30 PM ET

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Why 2026 is the Time for ESOPs

Strong companies are using ESOPs to play offense. With rates stabilizing and talent still tight, employee ownership is delivering a durable edge:

- Founder Liquidity—On Your Terms. Create a market for your shares without selling to private equity or competitors.
- Major Tax Efficiency. Enable capital‑gains deferral for selling shareholders (Section 1042 eligibility) and reduce or even eliminate ongoing corporate income tax for S‑Corporation ESOPs—freeing cash for growth.
- Talent Magnet. Meaningful employee ownership boosts engagement, retention, and performance—without relying solely on wage increases.
- Resilient Margins. ESOP tax advantages help counter wage pressure, input costs, and tariffs—so more operating cash flows to strategy.
- Control & Culture Intact. Transition ownership while keeping leadership and values in place.. Transition ownership while keeping leadership and values in place.

Bottom line: ESOPs create a rare win‑win‑win—for owners, the business, and employees.

What You’ll Learn

ESOP 101—Modern Playbook
How ESOPs work in 2026, who qualifies, deal structures, and timelines.

Tax Strategies that Change the Math
Capital‑gains deferral, corporate tax reduction/elimination for S‑Corp ESOPs, deductible contributions, and cash‑flow modeling.

Talent & Culture
Retention without across‑the‑board raises; ownership communications that actually move the needle.

Protecting Margins
How ESOP incentives can offset cost inflation and support reinvestment.

Valuation & Financing in Today’s Market
Bank/seller notes, mezzanine options, rate considerations, and why “bankable ESOPs” are closing now.

Governance & Control
Board, trustee, and management roles—what really changes (and what doesn’t).

Who Should Attend

- Business Owners planning an exit, partial sale, or recapitalization
- CFOs evaluating capital structure and tax strategy
- Advisors & Succession Planners guiding owner‑led companies
- HR & ESOP Committee Members building engagement around ownership

Agenda (90 Minutes)

1. Welcome, Speakers & Why ESOPs in 2026 (5 min)
  Quick orientation; who Menke is and why ESOPs are winning right now.
2. ESOP Basics & Business Owner Benefits (10 min)
  What an ESOP is; liquidity, diversification, succession, productivity.
3. Myth‑Busting: What ESOPs Do—and Don’t—Require (5 min)
  No, you don’t have to sell 30%+, borrow big, or give up control.
4. Deal Structures & Transaction Paths (10 min)
  Cash‑contribution (pay‑as‑you‑go), leveraged (bank/seller notes), and stock contribution; when each fits.
5. Typical Scenarios & Outcomes (10 min)
  Gradual sales, minority/majority sales, 100% buyouts, and recap strategies.
6. Who’s a Strong Fit (and Common Constraints) (5 min)
  Profitability, team/transition readiness, industry notes.
7. Tax Strategy Deep Dive (10 min)
  S‑Corp ESOP distribution savings; C‑Corp §1042 capital‑gains deferral; entity‑path options.
8. Valuation & Pricing vs. Third‑Party Sales (8 min)
  FMV standards, control vs. minority value, practical comparisons.
9. Financing the ESOP (8 min)
  Bank market overview, seller paper, balance‑sheet effects, cash‑flow modeling.
10. Plan Operations & Employee Communications (8 min)
  Eligibility, vesting, distributions, disclosures, and how transparency drives results.
11. Culture, Engagement & Measured Performance Uplift (6 min)
  What changes on day 2; tying ownership to productivity.
12. Roadmap & Next Steps (3 min)
  Feasibility, design/adopt, contributions, and timing the sale.
13. Live Q&A (2 min)

Hear From Past Attendees

“I came in skeptical. I left with a concrete roadmap and the math to brief our board.”

— Mark T., CFO, Manufacturing

“This clarified our exit plan and showed how we can reward employees at the same time."

— Susan D., Founder & CEO, B2B Services Firm

Your Presenter: Phil DeDominicis

Phil DeDominicis is an ESOP strategist and M&A advisor who has guided 300+ companies through ESOP formations, financing, and transactions over 20+ years at Menke & Associates. He specializes in selling ESOP‑owned businesses to financial or strategic buyers and in helping ESOP companies acquire other businesses.

Before Menke, Phil spent 14 years in investment banking M&A at Morgan Stanley and Salomon Smith Barney, advising middle‑market companies on change‑of‑control transactions. He holds a B.S. in Chemical Engineering from the University of Delaware (1985) and an MBA in Finance & Accounting from UCLA Anderson (1989). Phil currently serves on six for‑profit and not‑for‑profit boards.

What Phil will cover:

- Where ESOPs win in 2026 (tax, talent, and control)
- Owner liquidity paths: minority, majority, and 100% sales
- Financing options and what lenders look for
- Valuation reality vs. third‑party sales
- How to prep a board, trustee, and employees for a successful close

Reserve Your Spot Now

Seats are limited. Save yours now and receive the ESOP Feasibility Checklist.

Wednesday, September 30th, 2026

10:00AM – 11:30AM PT
11:00AM – 12:30PM MT
12:00PM – 1:30PM CT
1:00PM – 2:30PM ET

RESERVE MY SPOT

No cost. Suitable for companies with $5M–$500M+ in revenue across construction, manufacturing, services, distribution, tech, and more.

FAQ (Quick Hits)

- Do I lose control? No—most ESOPs preserve day‑to‑day control with your leadership team and board.
- Is this only for certain industries? ESOPs work across sectors when cash flow is stable and leadership continuity matters.
- Can we do a partial sale? Yes—stage liquidity over time while capturing tax benefits.

READY FOR AN ESOP NOW?

Interested in finding out how an ESOP could work for your company?

For a free preliminary analysis, just fill out our ESOP Feasibility Questionnaire.

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August 31, 2026

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August 17, 2026

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February 3, 2026

ESOP Boot Camp, Part 1: What Is an ESOP? How Employee Ownership Actually Works

🎙️ Listen to the Episode

What Is ESOP Boot Camp?

ESOP Fundamentals Explained

Why Understanding the Basics Matters

Who Should Start Here

Continue the ESOP Boot Camp Series

About ESOP Radio

Interested in Being a Guest?

Share this article:

Learn why an ESOP is better for You, your Business, and your Employees

Upcoming Web Seminar

Learn how ESOPs fuel growth, reduce taxes, and power succession—without giving up control.

Why 2026 is the Time for ESOPs

What You’ll Learn

Who Should Attend

Agenda (90 Minutes)

Hear From Past Attendees

Your Presenter: Phil DeDominicis

What Phil will cover:

Reserve Your Spot Now

FAQ (Quick Hits)

READY FOR AN ESOP NOW?

Interested in finding out how an ESOP could work for your company?

For a free preliminary analysis, just fill out our ESOP Feasibility Questionnaire.

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