My employer offers an ESPP and has for years. A while back, before I joined, they changed it and made it less generous. Seems most long timers shun the plan. I gave it a look and the details are:
- Employee Stock Purchase Price will be the FMV Closing price on the Offering Period End Date
- Stock Purchase Discount Amount: 5.00%
- Allowable Contribution Rate from Payroll Deduction: 1.00% - 25.00%
- Maximum Purchase Value per Calendar Year: $25,000.00
- Maximum Shares per Calendar Year: 5,000
- Mandatory Holding Period for Stock Sales After Exercise: 0 days
The stock trades between $25 - $35 a share so I'll have to deal with the $25k limit before the 5k share limit. The offering period is 6 months - for example January 1 to June 30.
I'm looking at the potential gain, thinking I might be able to get 5% someplace else and still have full access. Perhaps move the gain from income to long-term capital gains (the 5% discount from the company is income NOT short term gains). So I ran some numbers and was surprised. The return is a LOT more then 5% because I'm not dumping the full amount in the account for the entire 6 month period! In fact the first deposit doesn't even happen until Jan 15th, 2016 making the entire period 5 1/2 months not 6.
Check | Principal | Interest Paid To Date | Value |
15-Jan | $500 | 0 | $500.00 |
29-Jan | $1,000 | $4.64 | $1,004.64 |
15-Feb | $1,500 | $13.96 | $1,513.96 |
29-Feb | $2,000 | $28.00 | $2,028.00 |
15-Mar | $2,500 | $46.81 | $2,546.81 |
31-Mar | $3,000 | $70.44 | $3,070.44 |
15-Apr | $3,500 | $98.92 | $3,598.92 |
29-Apr | $4,000 | $132.31 | $4,132.31 |
13-May | $4,500 | $170.64 | $4,670.64 |
31-May | $5,000 | $213.97 | $5,213.97 |
15-Jun | $5,500 | $262.34 | $5,762.34 |
30-Jun | $6,000 | $315.79 | $6,315.79 |
So this is assuming $500 every paycheck is deposited into an account. At the end, June 30th, a total of $6000 has been deposited and it is now worth 5.26% more when the ESPP is executed. The period rate is 0.9277%. When I look at the timing of the deposits I find an APR of 22.26% and a APY of 24.8% (or is this IRR).
This is the only hint I could find about the 5% actually being a LOT more:
http://blog.adamnash.com/2006/11/22/your-employee-stock-purchase-plan-espp-is-worth-a-lot-more-than-15/I see time to hold risk (hours in my case) and lack of easy access as the only two down points. I'll take a $24.95 haircut to sell the shares. Am I crazy or is the little 5% a lot more and a great deal?