Is Your ESPP Bear Prepared?
5 ESPP Plan Considerations
Act now to protect your ESPP and employees as you progress through the uncertain times ahead.
The bull market, which has been going on for more than a decade, is finally slowing down, and the stock prices of many companies are now far below their recent all-time highs. Whenever the market turns, all types of equity compensation feel the impact. Let's start with ESPPs. Companies often overlook the marketing downturn's effect on employee stock purchase plans (ESPP) until it's too late.
Do you know what will happen to your ESPP when the market goes down? Do you know what to look for in your plan that could affect your ESPP and what to do to keep it from happening? Here are five questions to ask to protect your ESPP and employees as you progress through the uncertain times ahead.
Let's begin by considering the following considerations to ask when evaluating your plan. Review this now, so you don't accidentally cancel your plan, run out of shares, or upset your employees (or shareholders).
1. How many shares are available for purchase in your plan?
2. Do you have enough shares at the current prices to buy the number of shares you need?
3. What happens when you run out of shares?
Does the plan automatically expire on its own?
Does it stop until a future vote by shareholders can give out more shares?
What does your plan say if there is a potential for running out of shares in mid-purchase?
Will your most recent allocation approved by shareholders last long enough to get through this market?
Find out these answers now while there is still time to make some corrections before the end of the purchase period.
Don’t forget the $25,000 limit.
4. Does your company keep track of donations and stop them when the $25,000 cap is reached?
5. Have you communicated to employees what happens if your stock price has gone down, and employees are about to hit their $25k or share limits?
The limit for tax-qualified plans is $25,000. If the fair market value (FMV) on the subscription (grant) date is much higher than the price of the stock on the date of purchase, you may have a lot more employees hit the limit. If you don't keep track of contributions so you can stop them, have you communicated to your employees that they might get a big refund? If they do, do you have the money to pay it out?
Reviewing your plan and knowing the answers to these questions will help you make a strong execution plan. Proactively making changes will help you explain how the market downturn affects the company's ESPP. Confidently communicating these plan details will help them better understand the market and the economy without losing confidence in the company.
FutureSense has the expertise to develop a solution that will work well for your business. Contact us today to get help analyzing your ESPP and custom solutions to protect your plan and employees from this downturn.
About FutureSense
FutureSense is a management consulting firm that provides integrated solutions to build and sustain human capital capacity. The firm can work with you by offering support and guidance to manage your workforce. To learn more about FutureSense, please visit FutureSense.com.