{"id":122845,"date":"2021-06-30T00:00:00","date_gmt":"2021-06-29T23:00:00","guid":{"rendered":"https:\/\/gs:8890\/academy\/is-your-espp-ready-for-your-ipo\/"},"modified":"2021-06-30T00:00:00","modified_gmt":"2021-06-30T00:00:00","slug":"is-your-espp-ready-for-your-ipo","status":"publish","type":"post","link":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/insights\/is-your-espp-ready-for-your-ipo\/","title":{"rendered":"Is your ESPP ready for your IPO?"},"content":{"rendered":"<p>While ESPPs (employee stock purchase plans) are a popular way to share company ownership after\u00a0<a href=\"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/insights\/step-by-step-guide-ipo\/\" target=\"_blank\" rel=\"noopener\">IPO<\/a>, the best time to think about it is before an IPO.<\/p>\n<p>So, if offering an ESPP to your employees is something that appeals to you, make sure you put it in place pre-IPO. Why not take advantage of the relative freedom that being a privately held company gives you\u2026 while you still can!<\/p>\n<h2><b>Benefits of an ESPP to a Company<\/b><\/h2>\n<p>An ESPP gives employees the opportunity to purchase shares in the company they work for. It is a simple way to pursue a disciplined savings plan and build financial wealth. Under this plan, an agreed figure is deducted directly from employees\u2019 payroll overtime, and after a predetermined period \u2013 usually, six months \u2013 that money is then used to purchase shares.<\/p>\n<p>If you want to know more about ESPP, head over to our\u00a0<a href=\"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/insights\/what-is-an-espp\/\" target=\"_blank\" rel=\"noopener\">What is an ESPP<\/a>\u00a0guide.<\/p>\n<p>Offering ESPPs during the lead-up to an IPO is an ideal way to\u00a0<b>ensure the IPO excitement is felt by your employees<\/b>\u00a0and helps to\u00a0<b>maintain a culture of ownership<\/b>\u00a0for years to come.\u00a0<a href=\"#jumptohere\"><u>Jump to this section<\/u><\/a>\u00a0to learn more about why you should get your ESPP ready before IPO.<\/p>\n<p>What else can you expect to gain from offering an attractive ESPP to employees?<\/p>\n<ul>\n<li>Reduced turnover<\/li>\n<li>Greater work effort<\/li>\n<li>More hours worked<\/li>\n<li>Reduced absenteeism<\/li>\n<li>Less tolerance of colleagues perceived to be slacking<\/li>\n<\/ul>\n<p>Sound great! But what can you do to ensure that your plan will be sufficiently appealing to achieve such a good level of uptake? Here are five ESPP design considerations.<\/p>\n<p>\t\t\t\t\t\t\t<svg  viewBox=\"0 0 212.76581 94.01506\"><defs><\/p>\n<style>.d{fill:#fdca61;}.e{fill:#9fcaee;}.f{fill:#b01b2d;}.g{fill:#75b774;}<\/style>\n<p><\/defs><g id=\"a\"><\/g><g id=\"b\"><g id=\"c\"><g><polygon points=\"210.96515 40.61799 203.94789 40.23127 201.41164 46.78558 206.86142 51.22308 212.76581 47.4113 210.96515 40.61799\"><\/polygon><polygon points=\"0 37.1035 3.30346 36.5894 6.60691 36.07531 5.4004 39.19323 4.19389 42.31115 2.09695 39.70732 0 37.1035\"><\/polygon><rect x=\"75.43443\" y=\"1.26588\" width=\"9.73475\" height=\"9.73475\" transform=\"translate(2.03497 25.1148) rotate(-18)\"><\/rect><g><path d=\"M112.32401,32.31391c1.09064-.52336,1.90747-.36386,2.53833,.55261,.80709,1.17241,1.38703,2.35807,1.17768,3.89665-.55429,4.07318-.50307,8.15498-.16267,12.25964,.23002,2.77332,.04393,5.58118,.04393,8.64024,.43168-.29364,.87255-.44987,1.08858-.76187,3.39513-4.90403,6.76233-9.8274,10.13048-14.75005,.13062-.19085,.16786-.45236,.31517-.62378,.45369-.52795,1.0447-.9677,1.38342-1.55622,.33431-.58088,.4778-1.29115,.60971-1.96336,.132-.6723,.14607-1.36772,.19609-1.88906,.62533-.68693,1.25245-.69147,1.69053-.28793,.37574,.3461,.69585,.94179,.72189,1.44361,.08447,1.63137,.05894,3.27137,.01077,4.90613-.14808,5.02895-.45639,10.05717-.45026,15.08534,.00459,3.76637-.66531,7.44917-.91695,11.17848-.06044,.89584-.21471,1.80198,.37296,2.96902,.55484-.62653,.9553-.99657,1.25906-1.43383,5.21144-7.50224,10.21761-15.12412,14.09225-23.43654,.93531-2.0066,2.10214-3.91832,3.29561-5.78872,2.01385-3.15619,4.12847-6.24824,6.21182-9.3599,1.21947-1.82137,2.13242-1.73665,3.59276,.34983-2.98,6.58259-6.2902,13.02233-10.10212,19.1925-1.22762,1.98713-2.54892,3.93856-4.02234,5.74758-4.76564,5.85139-8.19565,12.51274-11.75632,19.09585-.50543,.93454-.76835,1.96006-2.04324,2.16726-.27335,.04444-.47578,.47553-.72832,.70958-.4059,.3763-.81562,1.02488-1.24319,1.04092-.76642,.02878-1.59856-.21865-2.30698-.55403-.63974-.30286-1.02685-.94363-.93441-1.73909,.04058-.34872,.08974-.69662,.14315-1.04363,1.30179-8.46608,1.54725-17.01185,1.91626-25.54764,.05478-1.26682,.00759-2.53811,.00759-4.1597-.60761,.45069-1.13358,.67444-1.41058,1.07172-3.21144,4.60559-6.38895,9.23494-9.56388,13.86588-.32963,.48076-.5657,1.02471-.87911,1.51774-.67933,1.06846-1.34473,1.38239-2.2917,1.1205-1.00163-.27699-1.64347-.94608-1.68555-1.96834-.12518-3.038-.31826-6.08051-.26172-9.11705,.09789-5.26497,.42019-10.52574,.52422-15.79072,.03157-1.59851-.34559-3.20513-.56291-5.03963Z\"><\/path><path 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d=\"M154.58755,74.93479c1.02402-.92887,2.12951-.84218,2.51006,.04667,1.03252,2.41199,2.36506,4.80515,1.92394,7.6067-.01283,.08155-.15851,.14221-.33615,.29154-.23487-.1341-.62194-.22088-.75964-.45455-1.40577-2.38604-2.4708-4.91986-3.3382-7.49036Z\"><\/path><path d=\"M37.85723,23.28874c-.45373-.03603-.6309-.00167-.6705-.06023-1.61207-2.38698-3.23259-4.76916-4.77581-7.20024-.13088-.20625,.18378-.82326,.44786-1.10034,.13993-.14684,.63004-.01797,.93664,.07254,.20497,.06053,.43349,.23573,.53485,.4228,1.21024,2.23328,2.41341,4.47089,3.57251,6.7308,.13105,.25554-.01793,.65475-.04556,1.13466Z\"><\/path><path d=\"M43.01584,48.96287c-.47387,.42546-.62503,.68234-.79673,.69688-2.23413,.18922-4.3,.90987-6.3166,1.85123-1.09414,.51079-2.23098,.75582-3.13768-.42418,2.35616-2.173,6.1398-3.00501,10.251-2.12393Z\"><\/path><path d=\"M129.09448,16.29184c.26541,.44275,.47222,.62957,.47934,.82382,.08777,2.38029-.73956,4.55535-1.61155,6.7027-.35889,.88379-.93123,.87469-2.21813,.12964,.58354-3.54274,1.31024-5.25365,3.35034-7.65616Z\"><\/path><path d=\"M136.06032,84.25578c.73738-1.52992,2.10424-2.25361,3.53438-2.8755,1.41727,1.41868,1.55163,2.45416,.53129,3.48492-1.20265,1.215-2.32465,1.06151-4.06567-.60941Z\"><\/path><path d=\"M92.95812,84.25947c-1.49882-1.96019-1.57432-3.89802-.41654-4.95791,.19523-.17876,.67595-.20209,.94736-.09712,.26841,.10386,.60285,.44713,.62503,.70932,.11969,1.41826-.40423,2.68023-1.15585,4.34571Z\"><\/path><\/g><\/g><\/g><\/g><\/svg>\t\t\t\t\t\t<\/p>\n<h4>Contact Global Shares Now<\/h4>\n<p>\t\t\t\t\t\tWe have an established track record in ESPP and will be more than happy to help to get your plan ready for IPO.<br \/>\n\t\t\t\t\t<a href=\"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/talk-to-us\/\"><br \/>\n\t\t\t\t\t\tContact Us\t\t\t\t\t<\/a><\/p>\n<h2><b>Get your ESPP ready: 5 things you need to consider<\/b><\/h2>\n<p>IPO is a particularly hectic period so we want to help you run a smooth ESPP design process with the following 5 considerations.<\/p>\n<h3>1. Choose a plan: qualified vs non-qualified ESPP<\/h3>\n<p>The most common design in the US is a qualified ESPP (also known as a 423 plan) as there\u2019s no taxable event when shares are purchased, so it\u2019s treated more favorably on taxation. However, a non-qualified plan offers more flexibility in design.<\/p>\n<p>Let\u2019s see their main features:<\/p>\n<table>\n<thead>\n<tr>\n<th scope=\"col\">Qualified ESPP<\/th>\n<th scope=\"col\">Non-Qualified ESPP<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Contribution made with after-tax dollars <\/td>\n<td>Contribution made with after-tax dollars <\/td>\n<\/tr>\n<tr>\n<td>Designed and operates acc. to Internal Revenue Section (IRS) 423 regulations <\/td>\n<td>Does not meet IRS criteria <\/td>\n<\/tr>\n<tr>\n<td>Discount ranges from 0% to 15%, with 15% most used <\/td>\n<td>May offer a discount of more than 15% from the current FMV of the stock <\/td>\n<\/tr>\n<tr>\n<td>Approved by shareholders <\/td>\n<td>Not required<\/td>\n<\/tr>\n<tr>\n<td>More favorably on taxation <\/td>\n<td>Less favorably on taxation <\/td>\n<\/tr>\n<tr>\n<td>Less Flexible <\/td>\n<td>Flexible\u00a0<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Read more:\u00a0<a href=\"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/insights\/qualified-non-qualified-espps\/\" target=\"_blank\" rel=\"noopener\">Qualified vs Non-Qualified ESPP.<\/a><\/p>\n<p>So, when deciding between a qualified or a non-qualified ESPP, it\u2019s important to identify the objectives your company is trying to meet.<\/p>\n<p><center><strong>Approximately 79% of ESPPs are qualified in the US<\/strong><\/center>\t\t<\/p>\n<h3>2. Offer a discount<\/h3>\n<p>For most cases, the discount range is between 5% and 15% and most companies offer a discount at 15% to help boost participation rates.<\/p>\n<p><center><strong>Qualified ESPP:\u00a0<\/strong>70% offer a 15% discount &amp; 17% offer a 5% discount<\/center>\t\t<\/p>\n<h3>3. Consider a lookback provision<\/h3>\n<p>Quite commonly, to make an ESPP more attractive, companies offer a \u2018\u2019lookback\u2019\u2019 feature in addition to the discount offered. The ESPP lookback feature allows employees to purchase the shares at a price on\u00a0<strong>either A:<\/strong>\u00a0the initial date of the offering period\u00a0<strong>or B:<\/strong>\u00a0the purchase date, whichever is lower.<\/p>\n<p>This ensures participants will not be disadvantaged in the event of the share price increasing over time. To see how this would play out, let\u2019s say company shares were valued at $10 on day one and $12 on the purchase date.<\/p>\n<p><strong>Initial Price<\/strong>: $10\u00a0<br \/><strong>Price on Purchase Date<\/strong>: $12\u00a0<br \/><strong>Company Discount<\/strong>: 15%\u00a0<\/p>\n<p>The actual purchase price was\u00a0<b>reduced to $8.5 from $10.2 with a lookback<\/b>.<\/p>\n<table>\n<thead>\n<tr>\n<th scope=\"col\">With Lookback<\/th>\n<th scope=\"col\">Without Lookback<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Purchase Price: $10<\/td>\n<td>Purchase Price: $12<\/td>\n<\/tr>\n<tr>\n<td>Actual Purchase Price: $10 \u2013 $1.5 (discount) = $8.5 \/ share<\/td>\n<td>Actual Purchase Price: $12 \u2013 $1.8 (discount) = $10.2 \/ share<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>\t\t<center><strong>Qualified Plans:<\/strong>\u00a062% have a look-back<br \/>\n<strong>Non-qualified Plans:<\/strong>\u00a035% have a look-back<\/center>\t\t<\/p>\n<h3>4. Set up offering period &#038; purchase periods<\/h3>\n<p>When considering your ESPP design, you need to think about how long the ESPP offering period would be. Most qualified ESPPs have an offering period of either 6 months or some multiple thereof (12 months or 24 months).<\/p>\n<p>Those longer than 6 months typically include interim purchase periods as illustrated below. The purchase date is at the end of each purchase period, on which the shares are officially purchased.<\/p>\n<figure>\n\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" width=\"800\" height=\"259\" src=\"https:\/\/www.jpmorganworkplacesolutions.com\/wp-content\/uploads\/2021\/11\/espp-offering-period.png\" alt=\"espp-offering-period\" loading=\"lazy\" srcset=\"https:\/\/www.jpmorganworkplacesolutions.com\/wp-content\/uploads\/2021\/11\/espp-offering-period.png 800w, https:\/\/www.jpmorganworkplacesolutions.com\/wp-content\/uploads\/2021\/11\/espp-offering-period-600x194.png 600w, https:\/\/www.jpmorganworkplacesolutions.com\/wp-content\/uploads\/2021\/11\/espp-offering-period-768x249.png 768w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><figcaption>An example illustrating a 12-month ESPP offering period with two 6-month purchase windows<\/figcaption><\/figure>\n<p>You need to consider purchase dates carefully because you may want to avoid month- or quarter-end, annual grant dates, holidays, or other peak times.<\/p>\n<h3>5. Communicate Early &#038; Often<\/h3>\n<p>Employee communications can have an important impact on participation. You can achieve high participation rates with a robust comms strategy regardless of the ESPP design.<\/p>\n<p>So, when you first attempt to pitch an ESPP to your employees, make no assumptions around their understanding of what is being proposed. Spell everything out, state explicitly how it works, and do so using clear, everyday language. If you lapse into jargon and business-ese and start to sound as if you are speaking in bullet points, you will lose at least a portion of your audience.<\/p>\n<p>Occasional communications aren\u2019t enough. It could lead to the perception among employees that participation isn\u2019t the company\u2019s priority.<\/p>\n<p>It\u2019s a good idea to use a variety of channels to reach your employees such as an intranet, blogs, town hall meetings, and lunch-and-learns.<\/p>\n<p>Items you want to include in your comms plan:<\/p>\n<ul>\n<li>ESPP Basics<\/li>\n<li>Key Plan Features: Discount, Lookback<\/li>\n<li>Plan Benefits: Build wealth and achieve personal financial goals.<\/li>\n<li>Lifecycle of the program from enrollment to purchase to the eventual sale of stock<\/li>\n<li>Max. contribution value<\/li>\n<li>Taxation<\/li>\n<\/ul>\n<h2><b>Why should you get the ESPP approved &amp; ready before IPO?<\/b><\/h2>\n<p>Again, offering ESPPs at IPO is an ideal way to ensure the IPO excitement is felt by your essential broad-based workers.<\/p>\n<p>It\u2019s okay not to launch the ESPP before an IPO, but you would miss some attractive benefits if you did it post-IPO as shareholder approval is easier when you\u2019re still private.<\/p>\n<p>Tax-qualified ESPPs require shareholder approval. Shareholders nearly universally approve ESPPs, but approval is even easier for private companies because approval usually only requires the support of a closely held group of founders and venture capital investors. It will likely save you time and effort.<\/p>\n<p>Also, obtaining shareholder approval doesn\u2019t require waiting for the next annual meeting.<\/p>\n<p>If your ESPP is approved while your company is private, you can also include an evergreen provision to automatically replenish shares every year (for rewarding employees in the future) without requiring further shareholder approval. Without such a provision in advance, increases in plan reserves after an IPO require shareholder approval via a proxy vote and they may not vote for it.<\/p>\n<p>So, if you can do it before going public, why wouldn\u2019t you?<\/p>\n<h2><b>So, make a smart move: Start your ESPP journey now&#8230;before your IPO<\/b><\/h2>\n<p>If you want expert advice on how to set up your ESPP, contact Global Shares now. We have an established track record in equity compensation and will be more than happy to help.<\/p>\n<p>\t\t\t<a href=\"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/talk-to-us\/\"><br \/>\n\t\t\t\t\t\t\t\t\tRequest a Demo<br \/>\n\t\t\t<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>While ESPPs (employee stock purchase plans) are a popular way to share company ownership after\u00a0IPO, the best time to think about it is before an IPO. So, if offering an ESPP to your employees is something that appeals to you, make sure you put it in place pre-IPO. Why not take advantage of the relative [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":122846,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[613,607,609],"tags":[654,664,668],"class_list":["post-122845","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ipo-hk","category-ceos-founders-hk","category-editors-pick-hk","tag-see-all-hk","tag-espp-hk","tag-ipo-hk"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/posts\/122845","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/comments?post=122845"}],"version-history":[{"count":0,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/posts\/122845\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/media\/122846"}],"wp:attachment":[{"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/media?parent=122845"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/categories?post=122845"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/hk\/wp-json\/wp\/v2\/tags?post=122845"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}