Business team reviewing data charts

ESPP Millionaires

April 22, 2020

Do you know how much return participants in your company's ESPP have realized on their investment? Recently, I ran across a blog about how Apple's ESPP has produced millionaires and it got me thinking about how that sort of information might be used to promote an ESPP.

Apple ESPP = Millionaires
In the blog ("$1.1 Million for Apple Employees," Forbes, 10/19/11), author Troy Onink estimates how much money Apple employees that have participated in the ESPP for the past seven years have made, coming up with just over $1 million per employee.

Onink does make a mistake in his assumption:  he assumes that each employee is contributing $25,000 per year to the plan. He bases this on the $25,000 limit, but he is apparently a little fuzzy on how the limit works--as my readers know, in a plan with a 15% discount (which Apple's plan offers), the most an employee could contribute per year is $21,250 (and this assumes an appreciating stock price, contributions would be limited more severely in a declining market). Moreover, according to Apple's Form 10-K, contributions are capped at 10% of compensation, so employees earning less than $212,500 per year can't contribute the maximum under the statutory limit anyway. An employee earning, say, $150,000 per year can only contribute $15,000.

Which means that Apple's employees probably haven't made quite as much through the ESPP as Onink thinks. Nevertheless, regardless of how much Apple employees contributed to the ESPP, the 635% return that Onink calculates is still applicable. Even with contributions capped at 10% of compensation, that's nothing to sneeze at.

What About Your ESPP?

If you were writing a similar article about your own company's ESPP, do you know how much money your employees have realized on their ESPP? For example, if an employee enrolled in your ESPP seven years ago, bought stock on the first purchase date, and still held that stock today, how much would it be worth?

More important, is the amount an impressive return? Because if it is, I think I'd mention that in the materials promoting the ESPP. Frankly, if I were the stock plan administrator at Apple, I think I'd be passing out copies of this article to everyone not currently enrolled in the plan.

Take a Lesson from Your 401(k)

The educational materials for your 401(k) plan most likely talk about return on investment and give examples of how much money employees will have when they retire for specified investment levels. Why not do something similar for your ESPP?

You have to be a little careful here--you don't want to be promoting the ESPP as a retirement plan--estimate a return over a shorter period. (Onink has a blurb about using ESPP proceeds to pay for kids' college educations. I don't recommend counting on the ESPP to pay for college, retirement, or anything important.) But you could have an example of how much return employees might have realized if they had enrolled in the plan five to ten years ago (this time frame helps to emphasize that this is a long-term investment). You could also run some numbers using disposition data and calculate the average return employees are actually realizing on their sales of shares acquired under the plan.

Of course, when discussing potential returns, always remember to include a disclaimer about past stock price performance not necessarily being indicative of future performance. I'm betting this disclaimer is included in your 401(k) materials--another lesson we can learn from this plan.

Happy Thanksgiving!

- Barbara

  • Barbara Baksa
    By Barbara Baksa

    Executive Director