The ABCs of Employee Share Purchase Plans

Administration

Many factors can affect your plan administration needs. Outsourcing your employee share plan to Computershare will help mitigate risk, ensure compliance with regulatory requirements, and allow you to focus on driving your equity strategy forward.

Annual Contribution Limits

This refers to a consistent minimum or maximum annual share plan contribution limit for all eligible employees. You may choose to vary contribution limits depending on employee band or position level within your organisation.

Communication

Communication is key to a successful and significantly higher participation rates. If you take time to create a communication strategy surrounding your employee share plan benefits and guidelines, you stand to increase participation by making it relatable and simple for your employees to understand.

Contribution

This is a percentage or a flat dollar amount of an employee’s pay check that is withheld to purchase shares on the specified purchase date.

Dividends

Dividends are payments provided to employees for contributory shares (and any matching shares, after the chosen holding period.) Consider how you might offer your dividends to participants – as cash payments or via a Dividend Reinvestment Program.

Eligibility

Companies should aim to support as many employees to participate as possible, though there are certain categories however that you may choose to exclude at your discretion (such as part-time employees or employees who have been in your employ less than two years). Computershare can support multiple approaches to eligibility.

Enrolment

Participants apply to enrol in the plan and indicate on their application the amount of their pay check they would like to contribute.

• Certain types of compensation may be excluded from contributions.
• Generally, there are limitations on the maximum contribution amounts allowed and the number of shares allowed for purchase.
• Contributions then commence for participants until the purchase date (the day on which the company stock is actually bought).

Holding period

You may want to restrict when employees are able to sell or transfer their shares after the purchase. For example, if you want to maximize the tax benefits to your employees, you could implement a two-year holding period from the date of the grant and a one-year holding period from the purchase date.

Matching

Your company may choose to offer “matched shares”, where shares purchased by an employee are matched, typically 1:1, 1:2, 1:3 or 1:4, by the company, as a way to incentivize employees to participate.

Offer Period

The period of time during which payroll deductions are taken from the participant’s pay check on an after-tax basis.

Purchase Period

The period during which contributions are collected prior to the purchase of shares. Some plans have a purchase period equal to the length of the offering period while other plans have multiple purchase periods within a single offering period