An Employee Stock Purchase Plan (ESPP) is a form of employee benefit that allows employees to purchase company stock using payroll deductions. In many cases, ESPPs also allow employees to purchase company stock at a discount to the current market value. ESPPs can be one of the simplest and best ways to compensate employees and also allow them to take part in the success of the company.

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Benny 2.0 automatically manages your Employee Stock Purchase Plan (ESPP) to make you more money without disrupting your take-home pay.

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The Benefits of ESPPs for employees

There are several benefits of Employee Stock Purchase Plans from the perspective of an employee:

• The biggest benefit of ESPPs is that employees can typically instantly make money by purchasing company stock at a discount to its current market price.

• Employees can share in the overall financial success of the company

• ESPPs can be easier to understand than other forms of employee equity compensation like stock options, restricted stock units (RSUs) or an ESOP.

• ESPPs are one of the few benefits that can be offered to all employees, not just executives.

Understanding How ESPPs Work

An Employee Stock Purchase Plan (ESPP) allows employees to purchase stock at a discounted price. Discounts often range between 5% and 15%, which is basically free money to employee participants. Even better, the ESPPs of many companies offer a lookback period, where the price you pay is the lower of the price on the date of the purchase or the date of the ESPP offering period. This can offer employees even more of a benefit.

The Role of ESPPs in a Company

There are a few reasons why a company might choose to offer an ESPP. Probably the biggest reason that companies offer ESPPs is that it helps to attract and retain top talent. Prospective employees will likely value the opportunity to buy stock at a discounted price. Current employees who are stockholders may be more likely to make decisions on the job that provide value and increase the stock price since it also benefits them. They may also be more likely to stay with the company since they are also part-owners.

Key Features of ESPPs

ESPPs are an employer benefit offered as a way to allow employees to purchase company stock at a discounted price. When an ESPP is offered, there is an offering period where employees contribute towards purchasing stock as a payroll deduction on each paycheck. At the end of the offering period, the accumulated payroll deductions are used to purchase company stock. The IRS currently limits employees to $25,000 in ESPP purchases each year, though each individual plan may have additional limits.

Top Companies with Exceptional Employee Stock Purchase Plans

Here’s a quick look at some of the top companies that have outstanding Employee Stock Purchase Plans.

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We’ll also give an honorable mention to:

1. Microsoft’s ESPP, which offers a 10% discount, with 4 purchases a year.

2. Royal Caribbean’s ESPP, which offers a 15% discount, with 4 purchases a year.

Apple

Technology company Apple is a Fortune 50 company that offers an ESPP with a 15% stock discount. You can enroll twice a year and contribute up to 10% of your salary with a maximum of $21,250 per year.

Salesforce

Salesforce (and their subsidiary Slack) also offers an ESPP. With the Salesforce ESPP, you can purchase Salesforce stock at a 15% discount. You can enroll twice per year and contribute up to 15% of your salary.

Adobe

Adobe, one of the top tech companies, allows you to enroll in their ESPP twice per year, and contribute up to 25% of your salary (with a maximum of $21,250 per year). When you purchase Adobe stock through their ESPP, you will receive a 15% discount. To top it off, their lookback feature goes a full 24 months back.

HubSpot

CRM provider HubSpot offers an ESPP that allows employees to buy stock at a 15% discount. You can enroll twice a year and contribute 15% of your salary.

Tesla

Tesla allows employees to purchase stock through the Tesla ESPP at a 15% discount. You can enroll twice per year and contribute up to 15% of your salary with a maximum of $21,250 per year.

Intel

The Intel ESPP has an enrollment period twice per year, where employees can contribute up to 15% of your salary, with a maximum of $21,250 per year. Eligible Intel employees can buy stock at a 15% discount.

Intuit

The Intuit ESPP allows eligible employees to purchase stock at a 15% discount, four times per year. You can enroll two times per year into the Intuit ESPP.

T-Mobile

T-Mobile, one of the leading communications companies, has an ESPP that bolsters a 15% discount, a lookback and allows you to contribute 15% of your salary. Stock purchases happen two times a year.

Duluth Trading Company

The Duluth Trading Company ESPP allows employees to purchase stock at a 15% discount, offers a lookback, and allows you to contribute up to 20% of your salary. In other words, their ESPP works as hard as their clothes do.

Ziff Davis

The Ziff Davis ESPP allows eligible employees to purchase stock at a 15% discount two times per year. You can contribute 15% of your salary each year.

Honorable Mentions:

Microsoft

Microsoft (and their subsidiary LinkedIn) has an ESPP where you can purchase Microsoft stock at a 10% discount to the market purchase price. You can enroll four times per year, and contribute up to 15% of your salary.

Royal Caribbean

The Royal Caribbean ESPP allows you to purchase Royal Caribbean stock at a 15% discount to the market purchase price. You can enroll four times per year, and contribute up to ~$21,250 each year.

Methodology for Analysis of Top ESPPs

There are a number of different ways that you can analyze different ESPPs. In most cases, there isn’t a need to compare ESPPs at different public companies. The ESPP that most people are going to be interested in is the one that is at their current employer. However, if you are looking at offers at several different potential employers, it’s important to understand how to evaluate the benefits of ESPPs. The key things to look for:

1. do they let you sell your shares right away?

2. Is the discount 10% or more?

If yes to both of those, you’re off to a great start!

For more information, ask the Benny team and we can help you evaluate your company’s ESPP.

Analysis of Top ESPPs

Evaluating the Benefits of these ESPPs

As we mentioned, in most cases, you will be most interested in the ESPP that is offered at the company where you work. As you evaluate the benefits of an ESPP, you’ll want to look at the discount offered, the enrollment or offering period and whether the company offers a lookback period.

Another factor to consider when evaluating an ESPP is whether or not the plan has a holding period. Some ESPPs have a holding period after your shares are purchased. It is our position that for the employee, having a holding period is a negative indicator of an ESPP, as it means the only people who participate are the ones who have enough disposable income to participate. Having the flexibility to sell or hold your shares when you want is very important.

How these ESPPs Contribute to Employee Wealth

ESPPs can be a big contributor to employee wealth and make for a good employee benefit. Employees instantly gain equity since they can purchase stock at a discount, but ESPP benefits don’t stop there. This wealth can be generated by selling the shares right away and using the proceeds to start building wealth or you can choose to keep the stock. If you hold on to the shares, you then have the opportunity to see the value grow with your company. Note the shares can also decrease in value.

The Impact of these ESPPs on Employee Retention

Attracting and retaining top-tier employees is a challenge for many companies, especially technology companies or others in competitive sectors. An ESPP can be a cost-effective employee benefit that encourages retention. Not only do many employees see value in being able to purchase discounted stock, owning stock in the company means that employees are also part-owners of the company. As a company owner, employees may feel more connected with and more likely to remain with the company.

Accessing and Making the Most of ESPPs

Assessing Value of ESPPs

If you are an employee of a company that has an ESPP, you’ll want to take a look at the details to decide if investing in your ESPP makes sense. A few things that you’ll want to understand are the discount you’ll receive, the length of the enrollment period or offering period, and whether there is a lookback period. You may consider talking with a financial advisor or someone else who provides financial services to see what makes sense for your specific situation.

You’ll also want to make sure that you understand the tax consequences of participating in an ESPP. Generally, the IRS has ruled that you do not owe any income tax when you receive your shares. Instead, you’ll pay tax when you sell your shares. Typically, if you sell within one year of receiving the shares, you’ll pay short-term capital gains tax, which is often the same as your ordinary income tax rate. If you hold your shares for at least one and a half years, you can pay at the long-term capital gains tax rate, which is usually less than your ordinary income tax rate.

Best Practices for Utilizing Your ESPP

In many scenarios, maxing out your allowed ESPP purchases will be a great way to further your financial goals. This is especially true if your company offers a significant discount and/or a lookback period. If the amount of money that is withdrawn from your paycheck each pay period potentially might affect your monthly cash flow, look at using a service like Benny. Benny can fund your ESPP contributions without impacting your take-home pay.

The Bottom Line

Employee Stock Purchase Plans (ESPPs) can be a great way for employers to recognize and reward employees. With an ESPP, employees can buy discounted stock (up to $25,000 per year per the IRS) by making regular payroll contributions. ESPPs offer both benefits for both employers and employees, and can be a great way for employees to boost their retirement savings and reach their financial goals.

Make More Money from your ESPP with Benny’s New Program

Benny 2.0 automatically manages your Employee Stock Purchase Plan (ESPP) to make you more money without disrupting your take-home pay.

Learn More