The presence of employee stock purchase plans (ESPPs) in the equity mix has been long and fairly consistent. Mostly drama free, for the past several years ESPPs seem to often live under the radar. If you have an ESPP, you may be wondering how it stacks up compared to those of your peers. If you don’t have an ESPP, your company might be entertaining the idea of implementing one. In today’s blog, we’ll look at some ESPP trends from the NASPP/Deloitte’s 2017 Domestic Stock Plan Administration Survey in an attempt to answer the question: Should you keep or implement an ESPP?
52% of survey respondents reported having an ESPP, which is basically consistent with our survey data from 2011 until now. This suggests somewhat of a leveling off of ESPP implementations (but not a decline since that time). Back in 2004, 64% of respondents said they had an ESPP – and that number declined until 2011 (likely due to changes in accounting rules).
The silver lining is that in the 2017 survey, 1 in 5 respondents who don’t have an ESPP report that they are considering implementing one. So perhaps this figure is primed to finally begin an upward trend.
When it comes to employee participation in the plan, a key metric in determining whether a plan is competitive, 62 percent of respondents with a qualified plan cite an employee participation rate of less than 40 percent. For non-qualified plans, participation is even lower, with almost 90 percent of respondents reporting participation of less than 40 percent. Exactly half report participation of less than 20 percent.
With a known positive correlation between the discount offered in the plan and participation rate (= the greater the discount, the greater the participation rate), the lower participation rates in non-qualified plans could suggest that non-qualified plans can be less generous. On the flip side, we’ve seen companies implement very generous terms and find themselves with 80% or more in participation. Obviously, this achievement includes more than just lucrative plan terms – communication and education matter in upping participation rates as well.
The following are a few highlights among trends in plan terms and practices:
- 15% is the most prevalent discount offered in ESPPs across the board (both qualified and non-qualified).
- The lower of the offering date or purchase date price is the most common way to set the purchase price for both qualified (63% of respondents) and non qualified (54% of respondents) plans.
- Two-thirds of companies say their participants hold shares purchased under a Section 423 plan for at least one year.
- 94% of companies offer no quick sale for purchased shares.
- 6 months is the length of the offering period used by the majority companies, followed by 3 months and 1 month. Longer duration offering periods are on the decline.
To learn more about the data from the Survey, including 6 factors that correlate to higher ESPP participation rates (shared by Joseph Rapanotti of Deloitte), NASPP members can view our webcast “Survey Says: Dos and Don’ts of Stock Plan Administration” (November 8, 2017).
Additionally, I’ll be presenting on “Considerations in Offering an ESPP” (with co-presenters Shyam Raghavan of Pearson plc, and Landy Tam of Computershare) at the Computershare/NJ/NY Center for Employee Ownership’s ESPP Day on February 8, 2018 in New York and hope to continue the conversation about ESPP trends.