The NASPP Blog

The topic du jour for my Google alerts for the past several days has been that companies are going to be enhancing their ESPPs in the next few years.  A recent survey by Fidelity found that 51% of companies that offer an ESPP are planning on modifying their plan in the next two to three years, and 31% of those companies are planning on increasing the discount.

ESPPs: Better than Sliced Bread 

For those of us that are strong proponents of ESPPs, this is welcome news. I think ESPPs are the best thing since sliced bread (and I say this as true carb lover) for a number of reasons: 

• Financial:  ESPP expense is usually insignificant compared to stock option and full value award plans; on a per-share basis, even the most generous ESPP is usually cheaper than both an option or full value award; and ESPPs are never underwater, ensuring that a benefit is delivered to employees in exchange for the expense recognized by the company.
• Shareholder Optics: The plans are minimally dilutive and rarely encounter shareholder opposition.  And employees tend to hold shares acquired under the ESPP.
• Employees: Right now, with interest rates at laughably low levels, ESPP make a great investment vehicle for employees. There is no other vehicle with the same low risk where you can earn a 17.6% return in, say, six months.

This is a win-win-win for everyone: employees, shareholders, and the company.  The preferential tax treatment is nice too.

Decline in Benefits

But, despite these benefits, we have seen an erosion in ESPPs since ASC 718 went into effect. In the NASPP’s 2011 Stock Plan Administration Survey (co-sponsored by Deloitte):

• The percentage of respondents offering ESPPs was 52%, down from 64% in 2004 (the last survey before ASC 718 went into effect).
• Of those respondents with an ESPP, the percentage offering a 15% discount was 71%, down from 87% in 2004.
• Lookbacks fared even worse:  only 62% of respondents in 2011 offer a lookback, down from 82% in 2004.
• And offering periods got shorter: in 2004, 43% of respondents offered a 12 or 24 month offering period. In 2011, that percentage dropped to 20%. 

Where Do You Stand?

So I’m very excited to see Fidelity’s press release stating that companies are reinvigorating their ESPPs.  I look forward to a day when all NASPP members proudly offer the most generous ESPP.  For now, I’m curious–where does your company stand: