What Are the Benefits of an Employee Stock Purchase Plan for Issuers?

If you want to position your company to be successful in today’s business world, you need to get your employees to buy into your vision. Sometimes, this means a literal buy-in through an employee stock purchase plan.

An employee stock purchase plan provides employees with an opportunity to purchase shares of stock in the company. Typically, employees are given a chance to purchase shares of company stock at a discount between 5 and 15 percent of their fair market value. While this gives employees an opportunity to diversify their investments and save for retirement, what type of benefits does the company receive?

Benefits of Employee Purchase Plans for Public and Private Companies

Some of the top benefits include:

1. Generate Another Revenue Stream

In today’s unpredictable economic environment, it is important for companies to diversify their revenue streams. One of the ways to do that is through an employee stock purchase program. If revenue from traditional product and service sales is falling a bit short, companies might be able to make up the difference by offering shares of company stock to its employees.

2. Encourage Talented Employees To Stick Around

If companies provide an employee stock purchase program, they might encourage talented employees to stay. Right now, employees are resigning from their jobs in droves, and it can be difficult to find and retain top talent. By providing employees with an opportunity to supplement their retirement goals, businesses can encourage their most talented employees to stick around.

3. Encourage Employee Accountability

Unfortunately, not everyone works their hardest. Some people simply clock in and clock out. If employees know they have a vested interest in the future of the company, they will be more inclined to work harder. An employee stock purchase program can incentivize employees to work harder because they know if they do a good job, the value of their shares will go up.

4. Raise More Capital

Some companies might be looking to fund mergers and Acquisitions. Other companies might be looking to complete more research and development. One of the easiest ways to raise more capital is to sell more company shares to employees.

5. Tax Benefits

Selling company shares to employees can also come with tax benefits. If employees contribute between ten and 20 percent of their income to the ESPP, that portion of their income is not taxed until they sell the shares. Then, it is either taxed as ordinary income or capital gains. It is not unusual for employees to save thousands of dollars in taxes through an ESPP, as capital gains taxes are often less than income taxes. The exact nature of the benefits will depend heavily on how the program is structured, and it is important for businesses to work with a tax professional to set up their ESPP accordingly.

6. Help Employees Save For Retirement

There is also an incentive for companies to help employees save for retirement. Companies need to be seen as providing for the futures of their employees, and helping employees save for retirement can do exactly that.

7. Replace Other Benefits

Companies can also use an ESPP to substitute for another benefit that might be seen as more expensive, such as an employee discount on products and services.

Consider Setting Up an ESPP

These are a few of the many reasons why businesses should consider setting up an employee stock purchase program. It provides a wide variety of benefits not only for employees but also for businesses. Contact Colonial Stock Transfer to learn more about how to set up your ESPP.

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