To read the newspapers these days, you'd think that employee stock ownership plans are reserved for union members and employees of large, publicly held corporations. But, in fact, the overwhelming majority of ESOPs are used by small companies seeking to take advantage of the tax benefits offered by the plans as they search for growth capital.

"It's the best way that I know of to get growth capital without bringing in outside investors. ... {The plan} brings everyone into the fold," said Shela Turpin-Foster, a consultant with ESOP/Incentive Strategies of Alexandria.

Jim Bellas and Ed Brandt, co-founders of the Bicycle Exchange, an Alexandria-based chain of eight bike shops in Northern Virginia and the District, hired Turpin-Foster to help them establish an ESOP earlier this year.

Using the company as collateral, the firm got a loan from the National Cooperative Bank, providing $350,000 in long-term debt, $300,000 of which was used to pay back another bank loan. In addition, the company got a $200,000 line of credit. The Bicycle Exchange is repaying the loan with money taken from salaries, and the employees in turn receive company stock.

Under the rules for ESOPs, interest payments on such bank loans are tax-free, making them increasingly attractive to companies in need of cash.

Two months ago, when the retirement plan went into effect, about 30 of the nearly 75 full- and part-time employees who are eligible for the ESOP found their take-home pay reduced by about 5 percent as money was deducted to pay for the 26.5 percent of the stock now owned by the employees.

Employees cannot get the money back until they leave the company or retire, a fact that could cause unhappiness among employees if management doesn't play its cards right, said Turpin-Foster. A "corporate culture" needs to be promoted to make the ESOP work, she said.

Bellas and Brandt make it clear, however, that while their employees now own part of the company, the current management will continue to make the business decisions for the company.

They said that before the ESOP the company had 10 owners -- Bellas, Brandt and the managers of the eight stores -- and communicated financial decisions to its employees. Bellas and Brandt said the new corporate culture already was in place. "It will affect commitment to the company rather than change the way decisions are made," Bellas said.

"Money gone is always kind of strange," said Julie Frank, manager of the company's newest branch near Tenley Circle. But the positive feelings the plan will promote should override any concern over lost wages, she said.

The plan will "help continue the store's positive morale," she said. "It goes along with the philosophy of just taking care of employees. ... Anybody who works here, even part time, is asked their opinions."

Creative business solutions come out of such openness, she said. For example, employees who work on national holidays split 5 percent of the company's gross for the day. Another employee suggestion resulted in top sales awards being extended to service employees.

Still, the ESOP is a formalized way of bringing employees into the fold, and a formal means for their participation was needed. Bellas said he is organizing a strategic planning committee of five or six employees that will meet regularly as a "clearinghouse for all the brainstorming that goes on." He said the committee will take staff opinions about the ESOP, how the company should invest excess profits and management issues regarding the stores.

Turpin-Foster said many ESOPs have failed because of a lack of communications between management and employees.

Though some firms will put ESOPs in place purely for their financial advantages, "I don't want my tax money going to it," Turpin-Foster said. "There should be a commitment to employees. All the studies show that if the company's going to do well, that that has to be a part of it."