How Employee Stock Ownership Can Make A Big Difference In A Post-Covid World

Here’s how employees can recognize the benefits of employee stock purchase plans

It’s no secret that the coronavirus pandemic has devastated the lives and livelihoods of people all over the globe. Despite a thriving stock market and record-high employment at the start of 2020, as many as 40 million US workers have lost their jobs as a result of Covid. Meanwhile, the road to economic recovery is proving to be slower than anticipated, with companies under increasing pressure to cut costs at every turn. 

The vast majority of the US workforce was struggling to make ends meet well before the pandemic struck. As much as 40% of all Americans reported that they could not cover a $400 emergency expense. Among these, 27% would have to borrow money or sell something to cover a $400 emergency and 12% couldn't cover it at all. Though we had plenty of reasons to believe the economy was strong as ever, far too many people were in danger of financial risk once the coronavirus pandemic forced broad-based lockdowns that destroyed much of the world economy.

Yet, so much of the advice that we hear tells us the same thing: save more, spend less. Although, an important advice is that accelerating the cost of living and stagnant wage growth has made the reality of this advice unreachable for most1. Most Americans need to earn more, and, in many ways, the current options aren’t working. 

Employee Stock Purchase Plans, or ESPPs, offer employees of publicly traded companies the ability to buy company stock at a discount (typically 15%), as well as the option to purchase stock at the lower of two prices (the price at the beginning and the end of the offering period, which usually is 6-12 months). The initial gain provided by the discount alone can be equivalent to a nearly 4% inflation adjusted annual raise for an employee, made possible by simply participating.  

Employee Stock Purchase Plans (ESPPs) provide meaningful opportunities for America’s working class to build wealth. These plans are purpose-built to help employees achieve greater financial security through company stock ownership. They were created in 1964—fourteen years before the creation of 401(k) plans—as a method to make stock ownership more accessible.

By enabling employees to purchase company stock at a discount, ESPPs can provide the potential for immediate capital gain. About 75% of public companies in the United States currently offer Employee Stock Participation Plans; however, a staggering 70% of eligible employees do not participate. This underutilization can be directly tied to a lack of understanding of what ESPPs are, how they work, and the economic barriers to full participation.

The two main barriers preventing widespread participation are cost and lack of educational resources. Many employees simply cannot afford additional payroll deductions and, for those who can, there is often a gap in their understanding of the plans. 

Consider that employees with higher salaries have more disposable income, which naturally makes ESPP participation easier. Given that ESPPs typically require after-tax payroll contributions, employees with less disposable income often find it exceedingly difficult to participate. Unfortunately, these are the very employees who would benefit the most from these plans. Additionally, ESPPs can be difficult to understand, especially for employees who have never participated in one before. Many plans have complicated features that can and should be communicated in a simple manner. 

So, what can be done to help more employees recognize the benefits of employee stock purchase plans? To start, the technology exists today that can help people participate without making additional payroll deductions. Second, improve the quality and distribution of educational content. These are just some of the solutions we are working on at Carver Edison through with Cashless Participation™ and our educational platform Carbon™. 

With Americans facing a potentially prolonged and difficult financial future, it’s important to consider employee benefits options such as ESPPs as means for helping to stay afloat. They can make a real difference in people’s lives, helping workers gain wealth while helping companies strengthen their balance sheets. 

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