Recently the Financial Times reported a surprising debate about ESPPs in the European Union (see Spotlight Falls On Employee Share Ownership Plans, Sept. 25). While researching issues in corporate governance and employee ownership, the European Commission started looking into ESPPs, called employee share ownership plans (or schemes) in the UK. Its consultation about the topic revealed some strange criticism of ESPPs. The detractors complain that ESPPs encourage employees to overconcentrate savings in their company's stock instead of building a diversified investment portfolio. This, they say, increases their financial risk if the company suffers hard times, as employees may lose both their jobs (i.e. their salary) and their invested savings.
However, as many experts point out, limits on annual ESPP investment in most EU countries make it essentially impossible for employees to overconcentrate savings in company stock through an ESPP. Indeed, for government-approved ESPPs in the UK, the annual contribution ceiling is a mere £1,500, far lower than the $25,000 ceiling that exists for Section 423 ESPPs in the United States. In other words, if employees ever put too much into the single stock of their company, it certainly isn't the fault of an employee stock purchase plan.
Here in the US, misunderstanding, or even apathy, about ESPPs is also more common than you might think. In the ESPP section of myStockOptions.com, we devote a lot of editorial space to the simple but important task of pointing out just how beneficial ESPP participation can be. Consisting of both articles and FAQs, our content explains the essential ESPP concepts, the key dates and terms that participants must know, and even some of the financial-planning strategies associated with ESPP participation. Probably the trickiest area of ESPPs for most employees in the US remains their taxation. Our content on ESPP taxation presents everything that employees must know to prevent tax mistakes and make the most of their participation.