Employee stock purchase programs

Do any of you partake?

I have the opportunity to buy in every quarter for 5% under the fair market price. All dividends can either be paid to me or reinvested in the stock at the fair market price (no discount). It's automatically reinvested unless specifically asked no to. All buying and management fees are paid for by the company except selling fees. Fees are $.10 per share with a minimum $40 charge when time comes to sell. Or a $50 transfer fee to manage them myself later if I so choose

I can contribute 1-10% of my salary up to the legal limit (which I don't come close to). Thinking of this is a longer term investment.

Sound like a decent plan? Don't treat this as my only long term investment, this is in addition to other things. I'm just more interested in if this is a reasonable offering from the company.

Oh, and about the 2 year holding period, is it from the time I start the program or per stock purchase, per quarter? So for example, if I quit in a year and a year passes, only the 1st quarters stocks are passed the 2 year period. I would get slammed for the others? Also, I assume reinvested dividends count as needing 2 years as well?

And the attached are 6 months, 1 year and 5 year performance.

5% discount wouldnt get me all hot and bothered with the 2 year lockup. But if you really believe in the long term company outlook and see it as a long term investment (so the lockup doesnt matter) its pretty decent option

Always be cautious of putting too many eggs in one basket though. Company has a tough time, stock drops, thats right when they can your sorry TGR-browsing ass. Then you have an illiquid position in a crap company and no job.

It's one of the "big four" agency holding companies. Unless advertising and marketing just ceases to exist, I think I'll be alright.

Sounds like a halfway decent deal.

If you work for the company, and don't believe in the organization/management/work enough to put a even a small percentage in the plan, you should quit.

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Originally Posted by systemoverblow'd

Oh, and about the 2 year holding period, is it from the time I start the program or per stock purchase, per quarter? So for example, if I quit in a year and a year passes, only the 1st quarters stocks are passed the 2 year period. I would get slammed for the others? Also, I assume reinvested dividends count as needing 2 years as well?

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I wonder if your companies HR personnel can answer this better than TGR? They sometimes have a use you know....

Consider it vs. the alternative: opening a discount broker account and buying the shares in the open market @ $7/trade and no holding period or transfer fees etc. Not sure how volatile the shares are but 5% discount can be wiped out in one days trading.

IMO it's not enough of a discount to get me excited, esp with the restrictions and other costs.

It's been a while since I participated in an ESPP, but 5% off the market price seems to be on the low end of the spectrum for a qualified plan. Does your plan allow for the shares to be purchased at 5% under the price either on the day that the purchase takes place or on the day of the offering? Because that can potentially add some upside to the deal for you. Still, I'm not totally convinced that you want to tie up cash for what appears, to me at least, to be a fairly modest benefit over just opening a basic online brokerage account and buying the stock on your own.

At IBM I could contribute up to 10% and get 15% discounts off the bi-annual offering price OR the market price whichever is lower, they had to alter it cuz there was a tax problem for the employee at which point I quit the program. I used the 1st stocks I bought as a house DP, kept all the rest and got a couple hundred which will probably sit there till I croak

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Originally Posted by Cruiser

Does your plan allow for the shares to be purchased at 5% under the price either on the day that the purchase takes place or on the day of the offering?

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This is what the plan states "Because you’re an ESPP participant, this stock can be purchased at 95% of the fair market value (the average of that day’s high and low price)."

I think my argument for it would be ease. I know if I had my own account it would go one of two ways. I would gamble with too much money and lose, or I would neglect it and not consistently pay in. With this option, it's every pay period a percentage is taken and then it's all pooled to buy stock each quarter. No management fees, no hassle. I can just let it do its thing and keep an eye on it.

I may be looking at the pros/cons the wrong way though and am certainly up for suggestions.

You need to read the rules more thoroughly or post them. A lockup can mean a couple things but rarely would you have to hold any stock you actually own for two years after it has been issued. There are different tax implications if you sell it before the two year lockup.

^^^Is this 144 aka "restricted" stock? In which case, he has to hold it for the designated holding period. The transfer agent won't remove the restriction, and the stock is untradeable until removed.

If it is 144 stock then your holding period is from the date of acquisition.

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Originally Posted by 4matic

You need to read the rules more thoroughly or post them. A lockup can mean a couple things but rarely would you have to hold any stock you actually own for two years after it has been issued. There are different tax implications if you sell it before the two year lockup.

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Yes, the tax implications is what I meant, I should have said holding period. Here is the bit about the 2 years...

attached a two screengrabs because copy/paste formatting sucks with this word doc.

Also, these programs are not as common and the benefits are not as good as they used to be. Thank the dot bomb and greedy and stupid Board of Directors for allowing backdated options. Prior to 2005 options and ESPP's didn't have to be expensed. It is a good law but is also the reason CEO cash salaries are out of control.

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Originally Posted by Timberridge

^^^I think this is 144 aka "restricted" stock, since he's talking about transfer fees. In which case, he has to hold it. The transfer agent won't remove the restriction.

If it is 144 stock then your holding period is from the date of acquisition.

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So that would be each quarter, for those stocks, the holding period is 2 years? So essentially, once I quit, after 2 years ALL of the stock will be passed the holding period, but say 1.5 years after I quit the last 2 quarters worth of stock is still under the holding period, correct?

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Originally Posted by systemoverblow'd

So that would be each quarter, for those stocks, the holding period is 2 years? So essentially, once I quit, after 2 years ALL of the stock will be passed the holding period, but say 1.5 years after I quit the last 2 quarters worth of stock is still under the holding period, correct?

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If it is 144 stock.

http://www.sec.gov/investor/pubs/rule144.htm

"The relevant holding period begins when the securities were bought and fully paid for. "

ESPP shares are not restricted stock.

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Originally Posted by Timberridge

Consider it vs. the alternative: opening a discount broker account and buying the shares in the open market @ $7/trade and no holding period or transfer fees etc. Not sure how volatile the shares are but 5% discount can be wiped out in one days trading.

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Would you be allowed to under company policy? What are the restrictions on selling these shares - previous plan I participated in had a narrow window within which you could trade;

stock programs like that wouldnt be 144.

I just read the screengrab. Theres no holding period or anything like that. You just get taxed on the discount received (5%). No big deal there, just paying taxes on gains like you usually would (albeit at ordinary income)

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Originally Posted by Hugh Conway

What are the restrictions on selling these shares - previous plan I participated in had a narrow window within which you could trade;

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We can sell on a real time basis via market order, limit order day or limit order 30-day

For 5% I wouldnt even consider it, unless you are already maxing out the 401k. Reason being is the growth implications of deferred taxes, the benefit of reducing your AGI for purposes of tax phaseouts like Roth eligibility and you stated that "extra" money would be potentially spend on "vices". If you are maxing the 17500 in 401k and can swing it, then I would go for it.

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Originally Posted by 4matic

ESPP shares are not restricted stock.

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Ok. Sorry for the confusion, I saw holding period and transfer fees and just assumed it was.

The bigger problem is your risk tolerance. Focusing a large percentage of your assets into a single investment raises your risk profile considerably. Big bets and focused investment is why Warren Buffett has been so successful. Can you stomach the 50% risk? I can't

YO ADVERSE!!! JUST BUY THE BAR ALREADY. HOW'D YOUR FRIENDS MAKE OUT? LOL

I have been in an ESPP for over 10 years. It has been a good investment with lots of big swings. But, the down drafts allow you to purchase stock at a lower price (on sale!).

Dollar cost averaging is a good way to build wealth. But, you will concentrate your wealth in a single entity and that has risk. Make sure your other investments (IRA, 401K) are sufficiently balanced to manage that risk.

Also, do not reinvest the dividends... The dividend is purchasing stock at market price... not the discounted price. Have the dividends transferred to some other account to be invested elsewhere.

Not worth the risk, as indicated before 5% can get wiped out in the blink of an eye.
I miss the early 2000's/dot bomb era. We had a bad ass espp: 6 month timeframe collection + take the lower price of either the beginning of the 6 months or end....whichever was lower then take 15% off. Those were the days!!! Then the government changes up the accounting rules on how the company records that discount. Sucks, that old method was a no brainer. Now it's whatever the price is at the end of the 6 months less 5%. Not worth it unless you are playing a long game with the stocks. You run the risk of losing money right off the top with this new plan.

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The only reason I would do it if I were you is if you strongly believe in the abilities of senior management at your company, and you have a feel on the pulse of the company, then take your 5% and reinvest the dividend. I wouldn't be too afraid of the tax implications. If you are stuck with a large tax bill it means you made a bunch of money and sold the stock.

i would not be dabbling in that at a 5% discount unless you are extremely well versed in the financials of your company and brock was correct in his post. if it is a 2 year holding period, do you think your company will outperform the market or anything else you could invest in over the next x years?