10 Benefits of Having an Employee Stock Purchase Plan (5 mins Read)

Employers have to constantly think of ways to retain their key employees. One of the ways to keep your workforce motivated and invested in your organization is to offer company shares. In one of our earlier blogs we have discussed various ways companies can offer shares to its employees and how it benefits them. You can find the link to that blog here. In this blog we are going to specifically talk about one such way i.e. Employee Stock Purchase Plan.

In the current scenario, you have to develop effective programs as a human resources leader which attracts and engages the best talents you need. An Employee Stock Purchase Plan (ESPP) is one of the programs which can help you immensely in this mission. When the organizations develop the benefit packages in order to attract the top talent and remain competitive in the market, they need to have the right mix of the rewards which the employees want the most.

If you don’t have an ESPP in place now, then you should know that there are many good reasons to offer one to the employees to meet your objectives. Here are some of the reasons why you should start an ESPP now:

1. Attract and recruit the best talent

Benefits like medical insurance are just the minimum benefits which can rarely make you stand out in the competition among attracting the top talents. As of now, only 40% of all the public companies offer a stock purchase plan to their employees. So, offering a stock purchase plan will make your company more attractive to the best candidates and help you hire the top recruits and deliver the people priorities.

2. Better performance by the employees

A study was conducted to determine if there was a difference in the employee performance among those who have an ESPP against those who don’t have. It was found that those who participated in an ESPP were ready to work for longer hours with less absenteeism. Moreover, they expressed greater job satisfaction and were less likely to quit which meant offering an ESPP led to a more engaged and valuable workforce.

3. Helps in raising capital

As the regular deductions from the salary of the participating employees provide a constant cash flow to the company, so this benefit is a quite a good one to share with the CFO of your company while making a case for an ESPP.

4. Offers discounted buying for the employees

The employee stock purchase plans offer an employee discount, which is set by the company. For qualified ESPPs, this discount may range from 2% to 15%. For non qualified ESPPs, the discounted price for the employees range in between 2% to 25%.

5. Helps in creating an ownership culture in the company

Having an ESPP is one of the easiest and often the most cost-effective way for the employees to purchase shares of the company. When the employees are also a part of the owners, then they have a greater stake towards the success of the company, which becomes a huge motivator and reduces turnover for the company.

6. ESPPs are not limited to any specific country

The benefit of ESPP is one of the few benefits which can be availed by all the employees across the world no matter which company, country, location or background they belong to.

7. ESPP has lower expense against other equity compensation

ESPPs usually have a lower valuation on the per share basis, than other forms of equity compensation and setting the limits on the share purchases can also lower the compensation expense. Hence, this is another benefit which can assist you with the reports on the ROI of your company’s plans and justify the costs.

8. Helps in increasing the savings for the employee

Savings for the employees working in private companies continue to be a problem, so with regular payroll deductions and the share purchases, an ESPP can help the employees to in saving more. Further, they can use that capital whenever there is a need.

9. Deductions in corporate tax

If the company offers a discount on the ESPP purchases, then it becomes eligible for a corporate tax deduction on the income recognized provided the income recognized and the discounts at purchase of the plans, should be reported on the employee’s form in order to qualify for that.

10. Works as a better substitute than any other more expensive benefit

Offering an ESPP is a more cost effective benefit than any of the other more common benefits like health insurance. For example, some retail companies offer the employees an ESPP instead of an employee merchandise discount.

Conclusion:

Once we go through all these reasons we find that the benefits of offering an ESPP is huge and the employers can benefit immensely by doing their research and deciding if some kind of equity sharing is good for them. While smaller companies may encounter more challenges offering equity in their company, the bigger companies on the other hand can use this for being much more successful in the long run.