ESPP (Employee Stock Purchase Plan)

ESPP (Employee Stock Purchase Plan)

An Employee Stock Purchase Plan (ESPP) is a company-run program that allows employees to buy shares of their employer’s stock—usually through automatic payroll deductions and often at a discounted price. It’s a simple, accessible way for employees to build ownership in the company they work for, often without needing to navigate the complexities of stock options or restricted units.

For example, a company might offer a 10% discount on its stock through an ESPP. If the share price is $50, employees can buy it for $45 using funds deducted from their paycheque. Some plans also offer a “lookback” feature, allowing the purchase price to be based on the stock’s value at the beginning or end of a contribution period—whichever is lower.

ESPPs are especially common in large public companies and are designed to encourage employee loyalty, retention, and financial participation in the company’s success.

Key Features:

• Payroll Contributions: Employees choose to contribute a percentage of their salary, which is used to purchase company stock at regular intervals.
• Discounted Stock: Most ESPPs offer shares at a discount, often up to 15% off the market price.
• Purchase Periods: Shares are typically purchased on a set schedule—e.g., quarterly or semi-annually.
• Optional Participation: Employees can usually opt in or out and adjust contribution levels within program rules.
  

ESPPs in Canada:

• ESPPs are offered by many Canadian public companies, though the specific tax treatment can vary.
• Discounts received on shares may be considered taxable income.
• Employees may also face capital gains or losses when they sell the shares later, depending on how the plan is structured.
• Unlike in the U.S., Canadian ESPPs aren’t governed by a specific tax-advantaged program, so it’s important to understand how employer contributions and stock discounts are taxed.
  

Benefits:

• Makes investing in your company easy and automatic
• Discounted purchase price provides immediate value
• Builds long-term wealth if the company grows
• Encourages employee ownership and alignment with company goals
  

Considerations:

• Your investment is concentrated in a single stock—your employer
• Market risk still applies; share prices can go down
• Discounts and gains may be taxable
• Selling restrictions may apply (e.g., blackout periods or holding requirements)

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