10 Steps for Creating an Employee Share Purchase Plan

Defining goals at the outset will guide the selection and design of an ESPP. The most common reasons for offering ESPPs include retaining talent in a competitive market, boosting loyalty as well as increasing employee motivation, morale and production.

Understanding how a proposed plan compares to the rest of the market – as well as what employees and internal stakeholders want from a program – will enable a company to tailor features to best meet its needs.

It is crucial to understand budget constraints early on in the ESPP planning process. Companies should also factor in set-up fees such as those for administration and communications, as well as costs associated with due diligence study, trust setup, tax reporting and filing.

The right combination will incentivize employees and will boost engagement and productivity. Variable ESPP design elements include:

• Plan type (e.g. whether it is broad based or selected employees only)

• The proportion of employee share discount or matching shares

• Applicable minimum and maximum plan limit (e.g. as a dollar amount, percentage of salary, or both)

• The offering/enrolment, payroll deduction and purchase frequency

• Amount and type of shares to fund the plan (e.g. purchase from the open market or issue new shares)

• Vesting period for the incentive shares

• Any forfeiture consideration for discounted or matching shares

• Dividend consideration

Support from internal stakeholders, including legal, finance/treasury, payroll/tax, human resources and senior managers, is crucial to a successful ESPP implementation. Involving these groups early may reveal unknown roadblocks and opportunities and give the team the chance to refine the proposal before presenting it to senior management or the board of directors.

Companies must usually seek shareholder approval for every new employee benefit plan that offers equity to company officers, directors, employees or consultants. It is critical that organizations build in enough time to seek and secure shareholder support.

For a successful long-term ESPP, companies should select a financially solid partner that has industry experience and a client-focused approach. They should also weigh up how user-friendly their systems are and pay close attention to feedback from customers.

Following a project plan and timeline with clear milestones can help ensure the ESPP launch goes smoothly. This includes establishing a database and administrative platform as well as making sure that systems integrate fully with those used by payroll and human resources and for the plan’s website. Companies should also ensure that employees responsible for rolling out the program have received all the right training.

Creating a communications strategy can help companies keep employees regularly informed about the plan and how to take part. Messages can be tailored to suit different demographics and align with the business’s goals. Companies should consider all available channels, including video, blogs, social media and town hall meetings, and develop unique streams to target specific groups.

Companies should undertake periodic reviews to ensure their ESPP continues to meet the objectives of the business and employees’ needs. They should feed this information into an ongoing communications schedule to target improvements.