Boosting Employee Engagement and Retention with ESPPs: A Growing Trend
More and more companies are offering ESPPs to increase employee engagement, boost retention rates, and create a culture of ownership. ESPPs are a way for employees to invest in their company's success and benefit from its growth. As part of your total compensation package, is your ESPP as competitive as it could be? With so many choices, today’s top talent expect more from an employer’s ESPP. In fact, The Society for Human Resource Management (SHRM) reported that ESPPs offering a 15 percent discount with a look-back feature, have a participation rate of 44 percent -- well above participation rates for plans that offer lower discounts or no look-back.
Millennials and Gen Z Want a Superior ESPP
Millennials and Generation Z are among the most insistent on a good ESPP. So having a superior plan that is skillfully communicated and expertly administered provides big advantages for companies that want to attract and retain the best talent possible.
EQ’s Shareholder Voice survey sample revealed that 50 percent of all shareholders in the U.K. and U.S. are between 18 and 40. And 18 percent are between 18 and 24 – aka the Generation Z. The oldest millennials were in their late 20s, during the 2008 recession. They saw their parents affected by the plummeting stock market or struggled themselves, looking for adequate employment, while also tackling student debt.
Your company’s stock ownership plan can provide an invaluable tool to catapult younger generations toward greater financial security. Furthermore, providing education about the importance of long-term investing, and how an ESPP fits into that puzzle, can have a positive impact on your company growth.
Unlocking the Value of ESPPs: Educating Employees for Growth
Don’t assume that your ESPP offering (or long-term investing in general) is easy to understand or is common practice. Clearly explain to your employees how your ESPP is complementary to retirement savings. Ensure candidates know your ESPP provides an additional savings option that can easily be liquidated down the road. Providing ‘context’ around the long-term value of your ESPP, could be the deciding factor for a candidate, as they weigh multiple employment opportunities.
Maximizing ESPP Awareness and Participation: Year-Round Engagement Strategies
A meaningful, year-round campaign will increase ESPP participation, as you educate your employees on the value of a stock program – and how it differs from a 401(k). Many will be new to the workforce or your organization and will need to learn more about this financial asset.
Here are some ideas on how you can educate and engage your employees and keep your ESPP top of mind all the time – not just during the enrollment period:
• Engage your ESPP provider to educate employees on your unique offering and why it’s an important component of their benefit package.
• Provide materials that explain the difference between your ESPP and 401(k) and how they can participate, and benefit, in both of these investment vehicles. For instance, an ESPP can be used for short-term life events like buying a home, while a 401(k) for long-term retirement goals.
• Partner with a financial advisor to host webinars or lunch-and-learns on the importance of investing.
• Post information on the main page of your company website.
• Create short tutorial videos covering a range of investing topics, including explanations of your plan’s look-back provision, stock match, or purchase discount features.
• Create a video of company leadership, talking about why your company offers such a benefit.
• Feature Gen Z testimonials, who are plan participants, sharing their experience with your stock plan.
Optimizing Your ESPP: Reevaluating and Improving Effectiveness
It may be time to reevaluate your plan and consult with your plan administrator about how your ESPP could be more effective. If participation is low, maybe there is a long restriction period, or your discount is not appealing enough – and do you offer look-back pricing ?
Engaging Young Investors with ESPPs
A superior ESPP offers an opportunity to engage with younger investors, who follow stories and themes. Building narratives in digital channels can engage these potential shareholders – especially when you keep them aware of things they care about, like ESG processes and results.
ESPPs and Leveraging Ownership for Retention
With 49 percent of the S&P 500 companies and 38.5 percent of Russell 3000 companies offering ESPPs to their employees, competition for top talent is fierce. By offering the opportunity to participate in the company's ownership, employees may feel more loyal and invested in the company's success. This can lead to higher retention rates and reduce the cost of turnover.
EQ: Empowering Companies and Employees with Equity Compensation Services
As a company that truly understands the value of equity ownership, we are here to help you take stock of your most valuable assets… your employees. EQ provides equity compensation services to include equity awards, Restricted Stock Units (RSUs), and employee stock purchase plans (ESPP).
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4 2021 Shareholder Voice Report, EQ UK and US Contributors: Paul Lynam, EQ. Amy Madden, EQ. Paul Matthews, EQ. Todd May, EQ US. Anthony Hall, EQ., Richard Davies, RD:IR, EQ. Katie Sevcik, EQ US. Mark Bullen, EQ. Graham Bull, EQ. Jennifer Rudman, EQ. Ian Cox, EQ. Jim Wulforst, EQ US. Margaret O’Keefe, EQ. Steve Banfield, EQ. Sheryl Cuisia, EQ & ShareSoc.
5 A lookback feature in ESPPs is a provision that allows employees to purchase company stock at a discount based on a predetermined formula. The purchase price is determined by looking at either if the stock price purchased at the beginning of the offering period is lower than if the stock priced purchased at the end of the purchase period. Employees would have the opportunity to purchase the company stock at a more favorable price.
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