Return to NASPP Blog
The NASPP Blog

The Case for ESPPs and Upping Participation

Subscribe to the NASPP Blog

February 13, 2020 | Jennifer Namazi

The Case for ESPPs and Upping Participation

In a recent NASPP Equity Expert podcast episode “ESPP Innovation: Helping Employees Participate” featuring Aaron Shapiro of Carver Edison, I gleaned some information why companies should have an ESPP, along with new innovation aimed towards increading ESPP participation rates. Those nuggets I’ll share with you today, along with my own insights on podcasts in general.

A Few Things I learned About ESPPs

First things first, let’s talk about what I learned about ESPPs – why they can be an excellent equity vehicle and how to increase participation.

  1. ESPPs have been around since 1964. They’re one of the oldest equity compensation vehicles, one that has been largely unchanged for decades. Even the IRS’s $25,000 max contribution limit per calendar year has been around since the inception of ESPPs (in that same amount).

  2. In spite of some pretty awesome plan terms, most ESPPs are under subscribed. According to the NASPP/Deloitte 2018 Domestic Stock Plan Administration Survey, 62% of companies with an ESPP reported participation rates of 40% or less of eligible employees. Ironically, according to Shapiro, many investment professionals would kill for the opportunities offered in an ESPP, especially those with features like a lookback and 15% discount. [Disclaimer here: no investment advice is being offered.]

  3. ESPPs may be one of the benefits that most closely mimics the interests of the average shareholder. Yes, in an ESPP shares are purchased by the employee at a discount, whereas shareholders don’t have that option. However, the purchase is made with after tax dollars from the employee’s own funds. When it comes to ESPP plans, shareholders tend to support them.

  4. Cashless loans to purchase ESPP shares may be an option to help participants maximize participation. In a historic move, the IRS issued a private letter ruling in April 2019 to Carver Edison that “…concluded that a participant’s ability to obtain a loan from its employer or a third party to purchase shares under a plan does not prevent the plan from qualifying as an employee stock purchase plan under Section 423(b). The IRS further concluded that the inability of a participant to obtain a loan to purchase shares due to the applicability of the Sarbanes-Oxley Act does not cause some options under the plan to have different “rights and privileges” in violation of Section 423(b)(5).” (Morgan Lewis Article, April 18, 2019)

  5. More on Carver Edison’s private letter ruling: Morgan Lewis explains that “Although private letter rulings may not be used by taxpayers as precedent, this ruling indicates that the IRS would not consider a provision in a plan permitting a participant to purchase employer shares with loan proceeds obtained from the employer or a third party as preventing qualification as a stock purchase plan, even if the plan prohibits some employees from obtaining loans due the applicability of the Sarbanes-Oxley Act.”

The thought of loan programs for ESPPs to maximize contribution potential is certainly intriguing and may be a game-changer in overcoming the employee participation slump. This is definitely something to watch in 2020.

A few general thoughts on podcasts: If you are a podcast enthusiast (and even if you aren’t one just yet…) the NASPP’s Equity Expert podcast series is a must-listen. The inspiration for this ESPP themed blog comes from our January episode, featuring Aaron Shapiro of Carver Edison. Episodes typically range from 15-25 minutes in length. That’s probably less than the commute time to work for many professionals.

Other recent episodes include:

Take a listen today. If you like what you hear, subscribe to be notified about new episodes.

- Jennifer


About Us

The National Association of Stock Plan Professionals is the largest and oldest professional association for the stock and executive compensation community, with over two decades of leadership providing expert resources, education and other benefits for our more than 6,000 members across 32 affiliated chapters.


P.O. Box 21639 Concord, CA 94521-0639 Telephone: (925) 685-9271 Fax: (925) 930-9284

©NASPP 2019, All Rights Reserved.