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How Prevalent are ESPPs?

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July 23, 2020 | Jennifer Namazi

How Prevalent are ESPPs?


Employee Stock Purchase Plans (ESPPs) have long been a staple in equity plan offerings. The opportunity to purchase stock at a discount from the fair market value can create a wonderful vehicle for a broad base of employees to have an ownership position in the company while making simultaneous pursuit of their financial goals.

While ESPPs are a popular equity compensation offering, and we have data on the number of companies who self-report having such a plan (52% of respondents in the NASPP/Deloitte Consulting LLP 2017 Domestic Stock Plan Administration Survey), curiosity exists around understanding the various demographics of companies who offer this type of plan.

Aon Rewards Solutions recently undertook a detailed analysis of ESPPs across the regions of the U.S. and its’ various industries. Their evaluation of filings for Russell 3000 and S&P 500 companies, along contributions from the NASPP and Fidelity, facilitated a deeper answer to the question – How prevalent are ESPPs?

The answer to that question has multiple parts. ESPP prevalence does vary by industry, region, market cap and employee population. Some of the significant observations Aon made are:

 

  • Technology and Healthcare are the sectors most likely to offer an ESPP
  • In evaluating regions, California was found to have so much ESPP prevalence (more than any other region), that it had to be carved out as its own region.
  • Looking outside of California, the states most prevalent in ESPPs are New York, Massachusetts, and Texas.
  • Size of market cap as an indicator of an ESPP was observed more in the Russell 3000 companies than the S&P 500 (where ESPPs were more evenly distributed across market caps).
  • Russell 3000 companies with smaller headcounts demonstrated strong ESPP prevalence, while the sweet spot for ESPPs in the S&P 500 appears to be in the 5,000 – 100,000 headcount range.
Our Equity Expert podcast episode “How Prevalent are ESPPs?” features a conversation with Daniel Kapinos and Rachel Lopez of Aon Rewards Solutions, where they further discuss Aon’s analysis of ESPPs. The episode is 20 minutes rich with data on how ESPPs exist within the company demographics outlined above and I highly encourage a listen.

Why is this data useful? Now more than ever, companies need creative ways to retain, motivate and reward their employees. It is a common misconception that an ESPP is only a great benefit when the market is on an upward trend and the company’s stock price is rising.

While financial rewards on ESPP shares may be reaped during an up market, there can be a unique buying opportunity when the market is down (note: no investment advice here, just my opinion.)

As companies look to differentiate themselves from competitors and motivate employees to keep moving forward during challenging times, the presence of an ESPP plan can make a difference. Companies looking to measure themselves against the offerings of their peers, along with those who are considering implementing an ESPP would benefit from digesting this data on the prevalence of ESPPs.
 

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