David Outlaw, CEP
Managing Director, Valuation & HR Advisory Services
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Employee stock purchase plans (ESPPs) are again on the rise. When broad-based granting budgets tighten, ESPPs are a cost-effective way to drive share ownership among employees. Companies are even evaluating and implementing some of the more complex, higher-cost ESPPs available. Why? Because the ASC 718 expense isn’t that high compared with the energy they generate and value they deliver.
But ESPPs can get complicated. There are a dozen ways to architect them. Participation rates vary tremendously, partly from the favorability of the program terms and partly from the way the programs are communicated.
If your ESPP isn’t generating results—or you’ve shrunk your general equity compensation program, or non-executive retention has become an issue—a new ESPP design could be a game-changer. Don’t settle for a generic program. We can help you choose the design that’s best for your organization.
How We Help
We can assist from the upfront ESPP design to downstream accounting. For example, we:
- Explain the different ESPP program varieties, including pros and cons regarding participant impact, administration complexity, and financial statement cost and dilution
- Model the financial statement implications of alternative design options, flexing key variables such as participation rate, future stock prices, and contribution levels
- Identify non-qualified ESPPs that offer more lucrative features, potentially focusing on key levels of management
- Value ESPPs by running a Black-Scholes valuation on any call and put features present
- Provide end-to-end financial reporting for ESPPs of all varieties
