EQ’s Employee Stock Purchase Plan Playbook

The following process will aid in a smooth implementation:

Choose your plan type

• A tax-qualified Section 423 plan gives U.S. employees more favorable long-term capital gain rates on sales of shares if certain requirements are met.¹
• A non-tax-qualified plan allows for more flexibility, including exclusion of certain employees. This can be used in combination with a tax-qualified plan.

Gain approval from the board of directors of your compensation committee. They should review and approve your plan prior to implementation.

Create an offering document that will give your plan maximum flexibility. For example, let’s say your plan allows for a maximum 15% discount with a lookback period of up to 27 months.¹ You can provide a 10% discount with a six-month look-back period in your offering document, then modify it in the future.

Consider a share reserve if your ESPP is being created in connection with an initial public offering (IPO). This will let you determine the number of shares that can be issued under the plan without requiring shareholder approval. A common approach is to set an initial reserve plus an evergreen provision.²

Send a prospectus to participants in an easy-toread Q&A format.

File an S-8, a regulatory document that allows your company to issue shares to your employees.

Start encouraging employee participation in your ESPP on Day 1. For best results, build out a year-round campaign that will reach potential investors across multiple channels and formats. Here are a few ideas to get you started:

Your company’s ESPP can help younger generations achieve greater financial security, so reaching Millennial and Gen Z workers is essential when communicating the details of your plan. Your materials should explain how your ESPP will provide long-term benefits for them. Here’s how:

Demonstrate the impact of your company’s plan on their financial future. For example, explain how ESPPs provide an additional savings option that employees can easily liquidate down the road.

Share messages about investment topics that matter to these employees, such as your company’s ESG processes and results.

Feature Millennial and Gen Z plan participants in testimonials showing how your plan has helped them financially.

Share themes and stories on digital channels, places where younger employees frequent.
 

When they’re fully engaged in your company’s plan, employees will feel more loyal and invested in your company’s success, helping to boost retention and lower turnover. Having an ESPP can also help you recruit the best and brightest workers. Here are some tips to make your plan more attractive:

Offer a look-back provision that allows employees to purchase stock using the fair market value price at either the beginning of the offering period or the end of the purchase period (whichever is lowest).

Present your ESPP alongside other benefits options, such as medical and dental insurance, and 401(k) plans.

Clearly spell out the difference between ESPPs and 401(k)s. Include examples, such as using an ESPP to buy a home vs. using a 401(k) to plan for retirement.

Provide context around the long-term value of your ESPP. This could be a deciding factor for candidates weighing multiple options.

Providing the industry with a full suite of integrated plan sponsor and participant advantages, EQ is your strategic partner to support employee equity plans that help motivate, align, and incent employees. EQ provides tailored solutions that offer flexibility and the level of support you need.