Top 10 financial-planning rules for ESPPs

Can ESPPs go underwater or be otherwise affected by volatile stock prices?

Video series on ESPP topics developed by myStockOptions

Articles and other resources on ESPPs

Survey data shows ESPP trends worldwide

CE course on ESPPs for CEPs and CFPs

Visit us at NASPP 2015 in San Diego

myStockOptions smartphone app: tap into our expertise anywhere


AdvisorFind Directory from Search this resource for financial, tax, and legal advisors with experience in stock compensation (see the ad below) Professional equity compensation diversification analysis (see the ad below) Developed for both participants and professionals, a complete online resource about nonqualified deferred compensation plans (see the ad below)


This issue of our quarterly newsletter showcases some of our award-winning content on employee stock purchase plans. Below you will find information about FAQs, articles, podcasts, and videos that give a taste of our expertise on this and every other topic in stock compensation. For much more, click through to our section on ESPPs and the related parts of the Tax Center. Thanks for reading!

We are celebrating 15 years since our launch! The equity compensation world has substantially changed since we launched in 2000, but we are still going strong as a trusted independent resource. Thank you for using and for your support and feedback over the years. If you do not yet subscribe to Premium or Pro Membership, giving full access to our content and tools, please check out the many valuable resources available to Premium Members and Pro Members. All of our content and tools are also available for licensing.

NEW FEATURE! Now you can take a piece of our expertise wherever you go with our new free app for iPad/iPhone and Android: Stock Compensation Glossary. For details, see our full description of the app.

Don't want to wait for our quarterly newsletter updates? The Blog is the best way to stay on top of equity compensation news and the latest developments at our website. You can also follow us on Twitter. And if you attend the NASPP's annual conference in San Diego at the end of October, please stop by our booth for a visit and a souvenir!

We hope you have a peaceful autumn!

—Bruce Brumberg (Editor-in-Chief)

FAQ: What are the most important financial-planning rules for employee stock purchase plans?

Before you participate in your company's employee stock purchase plan (ESPP), understand the following essential points for financial planning with ESPPs.

1. Set goals. Understand the value of your ESPP participation and how it fits into your life. What exactly do you want to do with the proceeds from the eventual sale of the shares? This consideration should include important life events and planning goals.

2. Know what type of ESPP you have. There are two types of ESPPs: tax-qualified and nonqualified. It is vital to know which you have.

3. Find out how purchase periods work, and understand the ESPP life-cycle. During a purchase period, payroll deductions are accumulated. The offering period and the purchase period can be the same length (e.g. six months), or the offering period can comprise two or more purchase periods. You should know whether you can increase or decrease your contribution amount during an offering or withdraw from the offering.

4. Understand purchase discounts and lookbacks. Your company will specify the discount before the offering begins. If your plan has a lookback feature, the discounted purchase price that you pay is based on the stock price at either the start or the end of the offering period, whichever is lower.

5. Learn the impact of job termination. If you leave the company, you will continue to own shares purchased for you during your employment, but your eligibility for participation in the plan ends.

6. Know the timeline of the ESPP holding periods. If your ESPP is tax-qualified, the tax consequences depend on whether you meet the holding periods required for favorable tax treatment.

7. Understand ESPP taxation. Your tax treatment is determined by the length of the holding period after both the start of the offering and your purchase date. See related FAQs for examples of the tax treatment when the holding periods are met, when the holding periods are not met, and for nonqualified ESPPs. This also affects your tax-return reporting.

8. Decide whether you want to sell or hold the shares after purchase. Whether you hold the shares and for how long will affect your tax treatment when you sell them. Consider company trading blackouts and ownership or retention guidelines.

9. Watch tax rates in the year of sale. Anticipate what your tax rate will be in the year when you plan to sell ESPP shares. Yearly income above certain thresholds raises your rate of capital gains tax and triggers a Medicare surtax (see a related FAQ).

10. Beware of overconcentration in company stock. Consider sales of stock for healthy investment diversification.

To read a detailed discussion of all these topics, see the in-depth article on financial planning for ESPPs.

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Find a financial, tax, or legal advisor with experience in stock compensation

Stock compensation raises many questions.

  • How much should you contribute to your ESPP?
  • When should you exercise stock options?
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  • How can you diversify your company stock holdings?
  • How can you minimize your tax bill?
  • How do you negotiate for stock compensation in your employment agreement?

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FAQ: Can my ESPP go underwater or be affected in other ways by volatile stock prices?

Employee stock purchase plans cannot be "underwater" in the traditional sense of having a purchase price greater than the current stock price. With an ESPP, the market price at the beginning of an offering does not completely control your actual purchase price. ESPPs with a discount and a lookback can be a good deal even with a decreasing stock price, as you are getting the discount off the lower of either the start-date price or the purchase-date price. Even if you do not have a lookback, you still get a discount off the market price on the purchase date.

Example: The stock price at the start of the offering is $20. The price on the purchase date is $10. The 10% discount applied to the purchase-date stock price results in a $9 purchase price. By contrast, if you had stock options that were granted with a $20 exercise price, they would be underwater with a stock price of $10.

Limits On The Amount Of Stock

However, when your company's stock price falls, you may not be able to purchase as many shares as you would like. It depends on the amount of your payroll contribution (e.g. 10% of your salary). With a tax-qualified Section 423 ESPP, you are allowed to purchase only up to $25,000 worth of stock in a calendar year (see a related FAQ). The value of your stock for this $25,000 limit is based on the stock's undiscounted price when the offering begins, not at the purchase date. In the example above, you would be able to purchase up to 1,250 shares ($25,000 divided by $20), not 2,778 shares ($25,000 divided by $9 purchase price). This can mean that your company refunds any amount contributed for an ESPP purchase over $11,250 (1,250 shares at $9 per share).

When its stock price falls, your company may have a reset provision under which, in a long offering period (e.g. 24 months) with a six-month purchase period, you are automatically withdrawn and then re-enrolled. This lets you take advantage of the lower lookback price, both for the $25,000 calculation and for when the market rises (hopefully) during the full offering period.

Tax Confusion

ESPP taxation can be confusing, and even more so when your company's stock price falls. When you satisfy the holding-period requirements for tax-qualified ESPPs, you still have ordinary income for the portion of the gain equal to your company's discount (e.g. 5%, 10%, or 15%) from the offering/start price, regardless of the actual purchase price for the stock and even if there is no lookback.

With a tax-qualified ESPP, the breakdown of ordinary income and capital gains can vary depending on when you sell the stock and its price, and a volatile or falling stock price can create tax oddities. For examples, see the full FAQ.

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Videos at offer an entertaining way to explain ESPP concepts, terms, and taxation

Stock plan professionals are always seeking new ways to make stock plan education easier for busy, work/life-juggling employees. This partly explains the current surge of interest in the use of video for stock plan education and communications. At, we have three lively, professionally produced videos on employee stock purchase plans (you can watch them below).

We welcome your comments on the videos, which exist alongside other videos on restricted stock and RSUs and stock options. As with much of our content, our videos can be licensed and customized by your company.

In Employee Stock Purchase Plans (ESPPs): Core Concepts & Benefits, Editor-in-Chief Bruce Brumberg clearly explains both the fundamentals of ESPPs and the benefits they can provide. Using animated examples, this video covers key ESPP concepts, including the offering period, the purchase date, lookbacks, and discounts. Running time: 3:35

In Employee Stock Purchase Plans (ESPPs): Key Rules & Decisions, Bruce discusses the important rules you must know and the key choices you will have to make when you participate in an employee stock purchase plan. Topics include ESPP features and the related basic financial-planning concepts. Running time: 2:53

In Employee Stock Purchase Plans (ESPPs): Taxes, Bruce presents the five key tax rules you must know when you participate in an employee stock purchase plan (ESPP). Illustrated by animated examples, the covered concepts include the special rules that depend on how long you hold the shares. Running time: 4:24

These videos appear in the ESPP section of By enticing viewers into the subject of their equity comp, all of our videos provide a helpful gateway to our more detailed content on the related topics.

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Articles and other resources on employee stock purchase plans

In addition to the videos presented in the prior section, below are some of the major articles and related resources about ESPPs in the award-winning content of We also have a self-study course and exam for CFP and CEP continuing education credits. All of our resources are available with a Premium or Pro Membership or through corporate licensing.


Six ESPP Essentials, by the myStockOptions editorial team
This two-part article series explains important ESPP aspects and concepts in plain English. Part 1 discusses the basics of ESPP participation, such as enrollment rules, plan types, and offering/purchase periods. Part 2 covers holding periods, tax rules, and the impact of various events, both personal (e.g. job loss) and corporate (e.g. M&A).

ESPPs 101: Key Dates And Terms You Must Know, by the myStockOptions editorial team
Your employee stock purchase plan (ESPP) may be one of the best benefits your company offers. However, to maximize its value, you must know its key dates and terms. This article explains the basics you need to know for your ESPP participation.

Podcast! Basics Of ESPPs, by Bruce Brumberg
In this eight-minute podcast, the editor-in-chief of explains how ESPPs work, including enrollment, offering periods, lookbacks, purchase, and taxation.

Fundamentals Of Employee Stock Purchase Plans, by Alisa Baker
Your company's employee stock purchase plan (ESPP) may be one of your best employee benefits. However, to maximize the value of your ESPP, you need to understand how it works. This four-part series covers all aspects of ESPPs, from the basic to the complex. Part 1 is free to all registered users of the site.

Are You Taking Full Advantage Of Your Company's Employee Stock Purchase Plan?, by Sandra Sussman
Strangely, many employees don't take advantage of their companies' employee stock purchase plans. This article will show you exactly why ESPPs are a good deal.

ESPP Contribution Limits And Why They Matter To You, by Bruce Brumberg
NEW! If you are enrolled in a tax-qualified employee stock purchase plan, the amount of company stock that you are allowed to purchase is limited. You will want to keep this in mind when you allocate part of your salary to your ESPP. Read this article to understand how the contribution limits affect your ESPP planning.

Employee Stock Purchase Plans: Qualified And Nonqualified Plans, by Bruce Brumberg
Bruce Brumberg, editor-in-chief of, developed this presentation for talks and meetings on the basics of employee stock purchase plans. Covered topics include types of ESPP, the ESPP tax treatment, and survey data on the use of ESPPs by companies. (Premium members may request permission to use the PowerPoint version at their companies.)


ESPPs 101: Taxation Made Simple, by the myStockOptions editorial team
To make the most of your company's ESPP, you must understand the tax consequences of participation. This article explains the basics of ESPP taxation.

IRS Form 3922 For ESPPs: What You Need To Know, And How It Can Help You Understand ESPP Taxation, by Bruce Brumberg
Stock purchases made through an ESPP during a calendar year are reported to you and the IRS on Form 3922 early in the following year. This article explains what you need to know about the information on the form, and how the form can help you better understand the complexities of ESPP taxation.

Financial Planning

Ten Financial-Planning Rules Every ESPP Participant Should Know, by the myStockOptions editorial team
NEW! Employee stock purchase plans (ESPPs) are a super deal. However, the related taxation and financial planning can be deceptively complex. This article presents the essential points that you should understand before you participate in your company's ESPP.

Employee Stock Purchase Plans And Your Financial Planning, by Bruce Brumberg
ESPPs are popular and prevalent at most public companies. However, the structure of these plans is changing. As this two-part article series shows, these modifications may affect your decision to participate in your ESPP and its place in your financial planning.

ESPP Choices: Flip Or Hold?, by Timothy Farmer and Gregory Geisler
After you decide to participate in your company's ESPP, you must choose whether to sell the stock soon after purchase or to hold it (and for how long). This two-part article series examines different ways to participate in your ESPP according to relative risk tolerance, timeframe, and needs for money.

Return to table of contents Professional Equity Compensation Diversification Analysis

Making Timely Diversification and Reinvestment Decisions

Maximizing the value of one's company stock and option grants requires a decision framework that facilitates a series of timely diversification and reinvestment decisions over many years. Evidence shows that most equity compensation recipients diversify only when their stock options are about to expire or when they need money. This approach is risky because company stock prices are constantly fluctuating. Here are 5 things you need to know to determine the optimal time to take action:

  1. Insight Ratios: A metric quantifying the current percentage of "time value" in a stock option.
  2. How small changes in stock price can yield large incremental increases and/or decreases in grant value (the leverage effect).
  3. The stock price at which a financial goal is reached.
  4. One's level of concentration in company stock and options.
  5. Forfeit Value: The current amount left behind upon terminating prior to retirement. provides this information and automated email alerts that facilitate timely and informed diversification decisions. Click here for a sample analysis.

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Survey by PwC and the NASPP shows continuing strong presence of ESPPs worldwide

Covering 245 multinational companies based in 12 different countries (but with employees in 75 countries), the 2015 Global Equity Incentives Survey by PricewaterhouseCoopers and the NASPP found that the general use of equity awards by the surveyed companies continued to grow in 2014 and 2015, after falling in 2009–2011 and rebounding in 2012. The research reveals that the use of ESPPs by the surveyed companies has remained constant worldwide. Other findings include the following:

  • ESPPs throughout the world tend to be largely the same, and 27% qualify as a "safe harbor" plan under US GAAP.
  • The majority of ESPPs include a 15% discount and a six-month purchase period. Only 10% of the surveyed companies offer no discount.
  • The most common length of the ESPP lookback period is six months (at 29% of the surveyed companies).

For ESPP trends in the United States, see our related FAQ, which presents survey data from many sources.

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Continuing education course on ESPPs for CEPs and CFPs

The Learning Center has courses of study and exams offering continuing-education credits for Certified Equity Professionals (CEPs) and Certified Financial Planners (CFPs). The course on employee stock purchase plans features articles, FAQs, videos, and a podcast on all aspects of ESPPs. These features teach the topic of ESPPs in an engaging and memorable way. In the exam that follows the course, the answer key links to relevant content on the site for further reading and learning.

Other courses offered through the Learning Center focus on nonqualified stock options, restricted stock/RSUs/performance shares, SEC law for stock compensation, and financial planning with equity awards. In total, the courses in the Learning Center can provide up to 25 continuing education credits for CEPs and 15 credits for CFPs.

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Nonqualified Deferred Compensation:, A Complete Online Resource For Participants And Professionals

Tax-rate increases and the new Medicare surtax have boosted the popularity of nonqualified deferred compensation. From the award-winning publishers of, features articles, FAQs, a glossary, podcasts, interactive quizzes, and a calculator, all to help you, your clients, or your executives understand and make the most of nonqualified deferred compensation.

  • Clear explanations of NQDC by experts
  • Financial planning, taxation, risks, job loss, and legal issues, along with core concepts
  • Appeals to plan participants, plan providers and administrators, financial advisors, attorneys, and companies with NQDC plans

For companies, education and communication are vital for ensuring NQDC plans work properly to motivate and retain vital executives, directors, and key employees. Companies can license our educational content and tools for websites, print materials, newsletters, and presentations.

For more information on, including its prestigious advisory board, see the About Us section of the website, and please contact us by phone (617-734-1979) or email (

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Visit us at the NASPP annual conference in San Diego

We are excited about the NASPP's annual conference, being held this year in San Diego (October 27–30). As always, will have its cheerful booth in the exhibit hall, where Bruce Brumberg will be available as an NASPP-designated expert to answer questions on stock plan education/communications and on equity comp taxation.

If you attend the conference, please stop by for a chat and pick up a souvenir!

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Take our expertise wherever you go with our smartphone app, Stock Compensation Glossary

Have stock compensation? Work with stock plans? Both? Now you can keep our valuable equity comp expertise at your fingertips with our new free app for iPhones, iPads, and Android smartphones: Stock Compensation Glossary, available from the App Store (for Apple devices) and from Google Play (for Android devices).

Based on the popular glossary at, this handy, searchable reference guide defines almost 1,000 terms in the areas of equity compensation and executive compensation, including terms used in the related taxation, corporate accounting, and securities law. Like all of our content, Stock Compensation Glossary is clearly written in plain English.

  • The glossary defines terms relating to all types of stock compensation, including stock options, restricted stock, RSUs, and ESPPs.
  • The Term of the Day helps you improve your equity comp vocabulary.
  • Fun interactive quizzes let you test your knowledge.
  • Recent searches can be quickly recalled.
  • The simple navigation is easy to use.
  • The glossary is always up to date and is continually expanded.

Companies are always seeking new ways to deliver stock plan education for employees who want more than traditional written content. Stock Compensation Glossary is just one of the many innovative multimedia ways in which can help.

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