Companies are increasingly turning to employee stock purchase plans (ESPPs) as a way of rewarding and motivating their workforce. Companies often provide discounted shares and matching benefits as additional incentives to increase employee participation and engagement.

Participation through salary deduction allows employees to build personal wealth through company equity. ESPPs not only encourage regular saving, but also foster greater loyalty and alignment with company goals and strategic objectives. In essence, employees who are also owners tend to work harder for the company’s success, which in turn benefits their own financial well-being.

Creating a successful ESPP

There are several factors to consider as a company prepares to introduce an ESPP.

Designing and implementing the right ESPP for your company and your employees is crucial to the success of the plan. Every detail must be carefully considered to avoid delays or issues during the rollout. However, knowing where to start can be daunting. Below are four key considerations to help you launch your ESPP and ensure its success.

1. Determine your ESPP’s purpose & budget

The first step in establishing your ESPP is to define what you want the share plan to accomplish. Align your plan’s goals with your company’s strategic objectives and overall mission. Gain a clear understanding of how your plan will compare in the market. This will ensure you have a competitive ESPP offering that aligns with your company’s overall success.

Common share plan goals include:

  • Attracting and retaining top talent 
  • Generating greater employee loyalty
  • Increasing employee engagement
  • Boosting employee morale and productivity

You’ll also want to think about and establish your share plan budget. Since shares are often offered to employee participants at a discounted rate, you’ll need to determine the percentage discount you are willing to provide. Company matching contributions is another incentive option. Identifying and budgeting for these discounts and matches is essential when building out your ESPP.  

Additional financial considerations should include the following:

  • Administration costs
  • Cost of participant communications and employee engagement material
  • Cost of due diligence research and development
  • Custody setup and tax reporting filings

2. Understand and establish ESPP elements

Building your ESPP involves integrating several key elements that work together to boost employee engagement and productivity, ultimately driving your company’s success. Establishing the right combination of share plan elements is crucial for long-term success. Below is a list of essential ESPP elements to consider:

  • Plan type (pre- or post-tax)
  • Company matching or discount
  • Minimum and maximum plan limit
  • Offer and enrollment periods
  • Lookback periods
  • Payroll deduction and purchase frequency
  • Quantity and source of shares
  • Vesting periods
  • Forfeiture considerations 
  • Dividend payments and reinvestment

3. Obtain key stakeholders buy-in and approval

As you prepare to launch a new ESPP, it’s crucial to gain buy-in from key company stakeholders. Engaging stakeholders from essential departments like legal, finance, payroll, tax and human resources early in the process provides valuable insights into potential roadblocks and opportunities. This early involvement ensures your ESPP proposal is comprehensive and well-prepared when it’s presented to executive leadership or the board of directors for approval.

4. Decide how to manage your ESPP and develop a comprehensive implementation plan

While it’s possible to manage your ESPP in-house, the risk of errors increases significantly when the plan is managed manually with spreadsheets or other internal tools. Leveraging a best-in-class platform provides the accuracy and security that is essential for managing employee participants and their financial future.  

Successfully implementing your ESPP requires a comprehensive timeline with clear milestones. By working with an industry leader, implementation and project plans will be uniquely crafted to ensure all your company needs are met. A comprehensive plan will include best practices, milestones and timelines to help you:

  • Establish a database and ESPP platform
  • Integrate payroll and human resources within the platform
  • Establish your eligible population
  • Set-up the participant experience
  • Identify communication strategies including participant education through available channels
  • Test and launch administrator portal
  • And, more

Wherever you are on your share plan journey, choosing the right ESPP strategy for your company will maximize the value of your plan.

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