While Employee Stock Purchase Plans (ESPPs) are designed to offer a number of tremendous benefits, not all programs see high participation rates. We find that many employees fail to take advantage of their ESPP programs for a number of reasons, including simply because they have to proactively elect to participate. Research shows that employees typically do whatever takes the least amount of effort with regard to their savings, generally doing nothing, no matter how great the program or how good the communications efforts.
With average ESPP participation rates less than 40% according to the NASPP Deloitte Consulting 2017 Stock Plan Survey, one possible solution to wide non-participation is automatic enrollment. Our friends and colleagues at Equity Methods indicate they have seen companies with automatic enrollment sustain participation rates over 80%.
What is automatic enrollment?
Automatic enrollment is exactly what it sounds like—eligible employees are automatically included in their company's ESPP program unless they opt out or confirm their participation within a specified period. With automatic enrollment (no initial action is required), the company directly registers newly hired or all eligible employees into their ESPP at a designated default contribution rate and clearly communicates the enrollment and plan terms to the employees, along with any plan prospectus or other materials required by applicable securities laws, so that they have time to consider participation before any payroll deductions are taken. Payroll contributions are then automatically deducted from the participants' pay unless the employee makes an election not to contribute or to contribute a different amount (subject to any legal requirements, as discussed below).