Computershare spoke to Dr. Joseph Blasi of Rutgers School of Management and Labor Relations about maximizing the value of your ESPP. Dr. Blasi is a J. Robert Beyster Distinguished Professor and Director of the Institute for the Study of Employee Ownership and Profit Sharing.

Watch the full webinar (40 minutes)

According to Dr. Blasi, employee stock purchase plans (ESPPs) are the most common and easiest broad-based employee share ownership plans. They allow employees to purchase company stock through small paycheck deductions, often with a discount, match or lookback feature. These plans are relatively quick and easy to implement, allow companies to raise capital, and have been shown to increase motivation and loyalty among those employees who participate.

Yet, despite these benefits, says Dr. Blasi, on average only 24% of employees participate in their company’s plan, and only the top 10% of high participation companies have a participation rate above 59%. 1

Here are five ways to maximize the value of your ESPP and increase participation rates:

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    Offer a discount

    With an ESPP, the amount of the discount usually drives participation, with a typical discount being 15%.2 Offering a discount reduces the risk for participants by lowering the stock purchase price so if there are any adverse moves in the stock price there is a buffer, explains Dr. Blasi. In addition, 82% of plans had a lookback feature, which increases the chance of profit.3

    Dr. Blasi points out there is a calculable loss for employees not participating in their company’s ESPP – they are, in fact, leaving money on the table. Presuming an annual limit on contributions of about $9,000 and a discount of 15%, people who don’t participate lose on average $3,446 each year.4

    Dr. Blasi also recommends that a lookback, allowing employees to purchase the stock at a more favorable price in the past, can accelerate the impact of this discount.

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    Develop a corporate culture of ownership

    Companies that create and promote a culture of ownership have higher participation rates, says Dr. Blasi.

    At Computershare, we’ve found this can be done by keeping the ESPP and stock price top of mind with employees. Communicate to staff at all levels how their jobs contribute to the company’s bottom line and connect their actions to driving up the company’s stock – when the company succeeds, they succeed. This encourages better performance, motivates employees to do their best, and increases loyalty, thus reducing the high cost of turnover.

    If your company conducts employee surveys, take a look at your trust scores, recommends Dr. Blasi, as higher trust often correlates to higher participation rates among those at lower salary levels, but not at higher salary levels. He adds that research has also shown companies named as a Fortune magazine “Best Company to Work For” increases ESPP participation by 13%.5

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    Allow new employees to join day one

    In the past, companies did not offer new hires immediate enrollment in 401K plans or RRSPs, but once this became a common practice it was seen as a great idea, says Dr. Blasi. So why not do the same with share ownership?

    Many employees, especially younger ones, don’t appreciate retirement savings, he says. They are often focused on shorter-term goals like paying off student loans or buying a home. Providing information on the advantages of the ESPP and making enrollment available during the onboarding process when they are registering for other benefits can increase participation.

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    Educate employees

    Research has shown that ESPP participation is lowest among lower paid employees as well as those with less education and financial literacy, explains Dr. Blasi. The highest participation rates are among higher salaried employees, longer tenured employees, employees receiving more promotions, and is 8% higher for people working in the financial industry.6

    Educating employees on ESPPs is a focus at Computershare. It is important to explain how participating in your ESPP can positively impact their financial wellness. Be sure to make your communications easy to understand using simple language. Give examples to demonstrate how the plan works. Use your ESPP as an opportunity to not only promote your program, but to improve your employees’ financial literacy.

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    Engage the CEO and leadership

    Related to creating a culture of ownership is having the CEO speak about the ESPP, says Dr. Blasi.

    At Computershare, we’ve found that having the CEO and senior leaders discuss the plan during town halls or other company-wide meetings, explaining the purpose of the plan and how it relates to corporate goals can be effective.

For full details of the research and statistics, watch the webinar.

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For more information on how to increase participation rates by maximizing the value of your ESPP, contact us today.

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Research based on Professor Ilona Bebenko of Arizona State University conducted objective research of 321 diverse firms published in Oxford’s Review of Economic Studies.

1, 2, 3, 4 How to Maximize the Value of Your ESPP webinar presentation, Slide 6

5, 6 How to Maximize the Value of Your ESPP webinar presentation, Slide 9

Disclaimer: The views and opinions express in this webinar are those of the speaker and do not necessarily reflect the views or opinions of Computershare.