ESPP: Employee Ownership on Layaway

Stickman ESPP LayawayRetailers once again are promoting layaway. Budgets have tightened and credit cards have become increasingly used for subsistence. Layaway offers companies a way to get a committed customer before an item is delivered. It allows them to collect a bit of revenue stream with every payment adding to the stickiness of the relationship. How does this apply to your pay programs?

Employee Stock Purchase Plans are an anomaly in compensation. There aren’t a lot of compensation tools that require employees to pay their company before the company pays them. Even with this unique structure, ESPPs get almost no respect from many executives. One of the big complaints about ESPPs is that many employees don’t truly become “owners” since they often sell their shares soon after the purchase date. Let me dispel this myth. Most employees actually hold their shares for months or years, unless the stock price is dropping quickly. They become owners of the companies stock and are aligned with the goals of other investors and hear the messages of management with a different perspective.

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But, the true ownership begins long before the purchase date. My brother and I each have a birthday in December. My parents would often buy holiday gifts on layaway. They would “buy” an item and pay it off over a few months, before finally bringing it home and giving it to us. While the item was on layaway, they owned it in their hearts and minds. They enjoyed the fact that they could provide better gifts to their family which made them happy. When they thought about the holidays, they pictured the gift being opened and felt the joy it would bring.

ESPPs are the same for many employees. They enroll in the plan and ask their company to keep some of their hard-earned pay. In their hearts and minds, the pay committed for the next purchase period has already bought their piece of the company. They own the shares from the day they join, not from the day the shares are delivered. While they may not have shares that pay dividends or allow them to vote, they are already aligned with other investors. The messaging from management means more to them. They are engaged because they have chosen to be, not because the company has given them something.

Spend a little money communicating or creating your ESPP. Building engagement is often as easy as letting people invest in their own dreams. ESPPs are uniquely qualified for this.

Spend some time this August exploring ESPPs. Read your plan and learn to fully understand it. If you don’t have one, find out why. If your company is publicly traded, a well-designed (and communicated) ESPP may be the compensation element that tips the engagement scales in your favor.