Increasing participation in employee stock purchase plans

The tight labor market is focusing employers on benefits they can offer to attract and retain talent. With this reality in mind, an employee stock purchase plan, or ESPP, seems like a good candidate to help meet the challenge. ESPPs are popular with employers because they offer a valuable benefit – company stock at a discounted price – to a broad group of employees. Company stock not only provides employees with potential financial gain, it also gives them a true sense of ownership, which can build loyalty and commitment. But while ESPPs are common among public companies of all sizes, worker participation is often low.

If you are looking to get the most impact from an ESPP, you may have already heard suggestions or successfully launched programs to increase awareness. Unfortunately, awareness does not always drive participation.

So how do you tip the scales from awareness to adoption? It takes a little more creativity. Two steps can help you get there: message and method.

The message

If you approach your ESPP as just another employee benefit, you will likely miss the mark. Think about who’s buying the stock, and what to say to encourage them to participate.

Let’s start by being honest – people don’t like to make tough choices. Employees are less likely to participate if they view an ESPP as a difficult trade off. You can deliver a different message. The plan can be a tool to support buying decisions, instead of replacing them.

It might help to have an example. If a company’s stock price is $150 and the ESPP has a 15% discount to market value, participants will pay $127.50. That’s a gain of at least $22.50 per share as long as the stock stays at or above $150. There’s no way to guarantee a sale price, but you can translate potential gains into spending decisions and financial goals.

In this scenario, an employee could buy 55 shares at the discounted price for roughly $7,000. After holding them for at least one year to minimize taxes, the employee may be able to sell those shares at or above $150 for a pre-tax gain of about $1,200. That gain could help offset the cost of a mortgage refinance, or simply pay for a year of unlimited phone data.

With larger purchase amounts or longer time frames, you could apply the same thought process to bigger financial goals. Don’t ask for sacrifice. Show how the potential gains from the ESPP could support spending choices employees have already made. By giving concrete examples rather than just an abstract formula, you can help workers visualize the ESPP in more practical terms and increase its perceived value.

The method

Once you have found a message, focus on how to deliver it.

Find the right stories for different employee segments. Personally, I’m less likely to care about unlimited data, but you have my attention if you show me how an ESPP could help put my boys through college. You know your employees and that can help you create examples that resonate, but do not forget to test. Pilot ideas with small groups and get their feedback. Employees will lead you to the right answer.

Method is not just about what you say but when and where you say it. For reaching existing employees, company-wide meetings and email are tried and true conduits. For new employees, the onboarding process can also highlight the ESPP, both verbally and in writing. Your company may find different channels work better. Wherever employers engage often with workers, there may be an opportunity to discuss the ESPP.

Workers are consumers of saving and investing products, and an ESPP has to compete for a share of their wallet. It is lot easier to succeed when employees can see how the plan supports and enhances their spending decisions and financial goals. If you understand those goals, then test your message and repeat it often, you can inspire more employees to action.

Amy Reback is Head of Schwab Stock Plan Services.

Disclosures: Schwab Stock Plan Services provides equity compensation plan services and other financial services to corporations and employees through Charles Schwab & Co., Inc. (“Schwab”) Member SIPC. Schwab, a registered broker-dealer, offers brokerage and custody services to its customers. 0322-2L1J