Employee Share Purchase Plans (ESPP) are programs where participants have an opportunity to purchase shares of company stock via payroll deductions. Traditionally used to reward executives, ESPPs have evolved as companies realise they help both attract and retain talent across the whole organisation, and at the same time help companies to stand out from their competitors.
As ESPPs increase in popularity across Asia, many companies are looking to further educate themselves about the key aspects involved.
Computershare has compiled a list of key terms and considerations that companies should be aware of as they embark on their ESPP journey.
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 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.
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 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.
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.
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).
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.
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.
The period of time during which payroll deductions are taken from the participant’s pay check on an after-tax basis.
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