Jerry Ripperger
Stock Plan Services Consulting
Deciding to offer an equity compensation program is merely the first decision facing a sponsoring employer. There are a lot of different equity compensation plans and approaches. How does someone choose?
Answering three questions can help guide a company as they consider Employee Stock Ownership Plans (ESOPs), Employee Stock Purchase Plans (ESPPs), Long Term Incentive Plans (LTIPs), and non-qualified (NQ) deferred compensation plans.
1. Who do you want to participate in the plan?
ESOPs and ESPPs are designed to allow broad groups of employees to participate, such as all full-time employees. NQ plans and LTIPs are used for select groups of employees, typically senior executives or key sales people.
2. Who do you want to fund the plan?
Specifically, does the company want to grant equity to employees or give them the ability to invest their money in company stock (often times at a discount)?
- ESOP and LTIP programs are typically funded by the company and are viewed as part of the total compensation package offered to employees.
- ESPPs are funded by the employee and contributions are typically administered through payroll. Many times, the ESPP will be offered at a discount to employees to encourage participation.
- NQ plans can be funded by either the company or the individual. Often the company will offer a match on employee contributions into the plan.
3. When do you want employees to have access to the funds?
ESOPs are qualified retirement plans and they are designed to accumulate funds for retirement. While LTIPS and ESPPs could be used to accumulate savings for retirement, they are frequently used to accumulate savings for other financial goals, such as college tuition or a vacation home. NQ plans can be used for either purpose and participants may establish multiple accounts under the plan for specific purposes and timing.
Help is at hand! Principal® has made tools and resources available on the stock plans solutions page to help companies and their financial advisors understand their options.
