Discounts, Offering Periods Key to ESPP Benefit

August 21, 2009 ( - Overall, 65% of the over 400 stock plan administrators in U.S. public companies surveyed said that an Employee Stock Purchase Plan (ESPP) was a beneficial or excellent investment, but if the discount on stock price was 10% or less, only 18% did.

ESPPs allow employees to put money aside to purchase stock over an “offering period” of typically three to 24 months. Companies can give employees up to a 15% discount, and can give them the right to buy at this price either at the end of the offering period or the lower of the price at the beginning or end of the offering period (called the “look-back feature).

The NCEO/CEPI survey, conducted in June and July 2009, includes responses from over 400 companies. With questions written by experts in the field, the resulting data is a unique source for insight into trends in plan design, participation rates, compensation cost, run rates, overall satisfaction with the plan, and more.

Look-Back Features

Similarly, according to the results of a new research project by the National Center for Employee Ownership (NCEO) and the Certified Equity Professional Institute (CEPI), more than half (57%) said the ESPP was a beneficial or excellent investment if there was a three-month look-back feature, but that shot up to 88% when there was a 12-month. Finally, if the price is determined only at the end of the offering period, 53% said the ESPP was a beneficial or excellent investment, but 75% said it was if there was a look-back feature to the start of the offering period.

The survey results show that a majority of the companies use a six-month offering period, while over-three quarters offer a discount of 11% to 15%, and 63% offer a look back feature (two percent of these set the price only at the beginning of the offering period). Participation rates vary less by employee demographics than might be expected, according to Corey Rosen, executive director and cofounder of the NCEO.

About half the companies report that for all employees other than senior executives their participation rate is 30% or less, although about 13% of the respondents say that hourly participation is less than 5%, about half of the rate for other demographic group By contrast:

  • 18% of the companies say more than half their hourly employees participate
  • 30% say over half their non-managerial salaried people do
  • 42% say over half their managerial employees do.

Participation Rates

Rates of participation have showed little change in 72% of the companies in the last two years, with about as many of the rest going up as down.

Rosen notes that, despite calls by some advisors to make the plans less attractive, 82% of the respondents made no changes to their plans in the past 12 months and a similar number (85%) expect no changes in the upcoming year. Roughly two-thirds of respondents describe their plans as “an excellent use of corporate resources” or “net beneficial,” while 3% believe their plans are not worth the cost.

Information regarding the full report of survey data is available online at