When companies develop benefit packages to attract top talent and remain competitive, they have to consider the right mix of the rewards employees want most. These days, offering benefits like a 401(k), medical and dental insurance are almost expected, especially among companies of a certain size.
As a human resources leader, you need a way to develop effective programs that attract and engage the employees you need now, and in the future, and to support every aspect of your talent strategy. An Employee Stock Purchase Plan (ESPP) can help you do that.
If your company doesn't currently have an ESPP in place, you should know there are good reasons to offer one to employees. Here are nine reasons why.
1. Better employee performance
We conducted a study in conjunction with the London School of Economics1 to determine if there was a difference in employee performance among those who participate in an ESPP versus those who do not. We found that those who participate in an ESPP:
- work longer hours
- are absent less frequently
- are less likely to quit
- express greater job satisfaction
In other words, offering an ESPP can lead to a more engaged, more valuable workforce.
2. Attract and recruit top talent
Benefits like a 401(k) and medical insurance are baseline benefits that hardly make you stand out against the competition among job candidates. But for the moment, approximately only 40% of all public companies offer an ESPP2. Offering one could make your company more attractive, to help you land top recruits and deliver on your people priorities.
3. Create an ownership culture in your company
An ESPP is the easiest and often the most cost-effective way for employees to purchase shares in the company. When employees are also owners, they have a greater stake in the success of the company, which can be a powerful motivator and reduce turnover.
4. ESPPs are a broad-based, cross-border benefit
An ESPP is one of the few benefits that can be made available to all employees, including employees in countries outside the U.S.
5. Raise capital
The regular payroll deductions from participating employees provides a steady cash flow to the company. This benefit is a good one to share with your CFO when making the case for an ESPP.
6. Lower expense than other equity compensation
On a per share basis, ESPPs generally have a lower valuation than other forms of equity compensation. Setting limits on share purchases can also lower the compensation expense. This is another benefit that can assist you with reports on the ROI of your plans and justify costs to your CFO.
7. Corporate tax deductions
If your company offers a discount on ESPP purchases, it may be eligible to take a corporate tax deduction on the income recognized. The income recognized on disqualified dispositions of Section 423 plans, and discounts at purchase of non-Section 423 plans, should be reported on employees' Form W-2 to qualify.
8. Increase employee savings
Saving rates in the U.S. continue to be a problem. But with regular, automatic payroll deductions and share purchases, an ESPP can help employees to save more. And they can easily access that capital when the need arises.
9. Substitute for another (more expensive) employee benefit
In some cases, offering an ESPP can be a more cost-effective benefit than other more common benefits that can be cost prohibitive. For instance, some retail companies offer employees an ESPP rather than an employee merchandise discount.
Ready to start your own ESPP?
Computershare administers employee stock purchase plans for hundreds of companies all around the world. To learn more about our services, fill out the form below to schedule a complimentary demonstration with one of our ESPP experts.