Trends in ESPP Policies and Participation

I’m back with another installment in our ongoing quest to help companies with relevant and actionable benchmarking and insights.  The NASPP and Fidelity teamed up to dig into ESPP policies.  As a lifelong ESPP super fan, I’m delighted to share highlights of our June 2022 survey. 

ESPP? What don’t we already know?

It’s true. We know a lot about ESPP!  Both Fidelity and NASPP have extensive resources and benchmarking on ESPP. And 2022 seems to be the year of the ESPP. With so much interest in ESPP, there were a few areas we thought were worth digging deeper.  It’s exciting to peel the onion back a little more to really understand ESPP policies and peek at some of the surprising things that drive participation.

A window of opportunity

With so many new ESPPs hitting the scene, many companies are wondering about what the best enrollment window is.  There are varying practices, but I’m a fan of a smallish window.  I’ve always thought a tight enrollment window can create a sense of urgency, like an expiration date on a great coupon to your favorite restaurant!

Short enrollment windows lend themselves to bigger bang communications to make sure employees know about the impending deadline.  It turns out that most of you share my enthusiasm for short windows, with half of companies embracing a short-and-sweet two-week enrollment window, and another third of companies clocking in with a three week or one month window.

Am I on a deadline?

When it comes to deadlines for enrollment and withdrawals, practices are pretty varied.

Enrollment cut-off

Companies need to determine when to cut off enrollment.  Given the administrative requirements and multiple stakeholders, I’ve always thought having a “reasonable” deadline makes sense. After all, after enrollment is complete, enrollment files need to be validated and sent to payroll to trigger the deductions. With many companies operating a global ESPP (more on that later!) this can involve multiple payrolls. 

But “reasonable” appears to be in the eye of the beholder. The most common practice (27%) is to cut off enrollment two weeks before the offering begins. To me, this seems reasonable. But the second most common practice (19%) is to cut off enrollment the day before the offering begins.  And another 9% cut off the day the offering begins. 

That is a whopping 28% of companies facing very tight deadlines for getting payroll updated!  While these deadlines allow more employees to participate, particularly newly hired employees, it may put unreasonable pressure on the stock and payroll teams to kick off the offering.

Withdrawal cut-offs

Nearly 4 out of 10 companies cut off withdrawals 10 days to 2 weeks before the purchase.  Again, to me, this seems reasonable to stop the deductions and refund the accumulated contributions.  Yet, there are 15% of companies cutting off withdrawals the day of the purchase or the day before the purchase.

While we weren’t able to cross reference this to plan design, I’m a little surprised by these practices. The most common discount is 15%, and the significant majority of plans don’t require employees to hold the shares for any length of time. In these cases, allowing the purchase to proceed means the employee could likely sell the shares at a gain and settle the transaction before payroll can get those funds back to the employee.

ESPP Everywhere?

As I mentioned, based on the interest I’m observing, 2022 appears to be the year of the ESPP. So, naturally questions arise about how often companies offer their ESPP to all employees in all jurisdictions. This survey presented an ideal opportunity to really dig in here on this elusive answer.  To get to the heart of the matter, we have to look both at countries included, and employees included.  Employee populations can vary widely… from a single person sales office to a behemoth manufacturing facility.

In terms of eligible countries, 75% of respondents fall at the extremes:

• 27% offer their ESPP in less than 10% of countries where they have operations.
• 48% offer their ESPP in 80% or more of countries where they have operations.

But, these results may not accurately reflect the extent to which worldwide employees are eligible for the plan.

• Overall, 63% of respondents make 80% or more of their employees eligible to participate in their ESPP.
• 84% make at least half their workforce eligible for their ESPP.

Set a target ESPP participation rate

One finding from the survey is that companies that have set a target participation rate for their plan report higher participation: 62% of respondents with a target rate report participation of over 40% compared to only 49% of those without a target. Yet half of respondents to the survey did not have a target participation rate. Clearly a first step in increasing participation is to decide on a goal to measure the plan against.

The next step is to evaluate participation in your ESPP. Companies that do so report higher participation: 60% of companies that analyze their participation report participation of over 40%, compared with only 48% of companies that don’t evaluate their plan participation. Yet, just as with target participation rates, a surprising percentage of companies don’t do this—nearly 40%.

I don’t mean to suggest that these actions are a panacea, but they can provide a springboard from which to decide on further actions to take to increase participation. Some factors by which to look at participation are:

• Employee location (34% of respondents)
• Salary grade/job code (20%)
• Demographic data, such as age, gender, or ethnicity (only 8% of respondents look at these criteria but doing so could help identify economic barriers to participation; we’d like to see more companies looking at these data)

Did I mention ESPP education?

I know I sound like a broken record on using multiple channels to educate employees about the plan (see my prior blog “3 Gifts for Your Stock Plan Education Efforts (and One BIG Bonus)” but it works. Only 36% of companies that use just one communication channel to promote the plan report participation of over 40%; add even just one channel to this mix and this jumps to nearly 60% of companies.

We also found that some channels appear to be more effective than others. Companies that use employee presentations, video, and internal collaboration tools to promote the plan were significantly more likely to report participation of over 40% than companies that don’t use these channels.

The easy button for ESPPs

In these dog days of summer, an easy button sounds great to me.  To help everyone get the best of results while still embracing the lazy days of summer, I’ll share one ESPP easy button we uncovered in the survey: leveraging your broker or third-party administrator to support your promotional efforts.

If your broker or third-party administrator offers resources, such as videos, workshops, targeted messaging and other educational materials, those can help you easily add communication channels to your educational program. Companies that leverage these resources are more likely to report over 40% participation than those that don’t.

Now what?

There are a lot of great ESPP nuggets in this survey.  If I’ve piqued your interest, and you didn’t have a chance to complete the survey, but are salivating to see the full results, don’t fret.  While the initial results are in, it's not too late to participate and compare your practices vs others. 

_{Source: NASPP and Fidelity Investments ESPP Research, June 2022
The NASPP and Fidelity Investments are not affiliated.
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