ESPP redemptions

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ved
Posts: 690
Joined: Sat Jan 18, 2014 6:56 pm

ESPP redemptions

Post by ved » Thu Sep 17, 2015 4:24 pm

Hi all,

My company has an ESPP Plan, where we can contribute a % of our salary, and buy the company shares at a discount of x% to the average of high and low price for the day. The shares are bought with every pay check (twice a month). It takes about 2-3 days to settle.
It used to be that we could not redeem it for at least 6 moths (disqualified disposition) or 2 years (qualified disposition). But, they recently changed the rules that we could sell it immediately after it settles (still a disqualified disposition, but that's ok).

I have been reading about how to treat the ESPP shares, and there seems to be overwhelming opinion that these shares should be sold as soon as possible, so as to take advantage of the discount, but not be exposed to the share price fluctuations of the company I am working at.

I am fine with selling them as soon as I can. The problem is, the discount comes to about $35 per pay period. When I sell the shares, the fee for sales is $15, with proceeds sent by US Mail (takes about 7-10 business days). So, I am looking at about $20 net, assuming the stock price didn't change between the buy and the sell (netting about $480 per year (=$20*24 pay checks)). Wire transfers or other express delivery is another $25. So, that would not make sense

These fees are pretty much constant whether I sell just one pay period's shares or wait until I accrue shares from multiple pay periods. So, it makes sense to wait for multiple pay periods (say 3 months or so), and then redeem them (then I would net about $35*6 pay periods -$15 fee = $195 per quarter, or $780 per year). But then, I am at the mercy of the stock price fluctuation for those 3 months.

This was not much of an issue for several years when the price was going up :D . But, over the last couple years the stock price has been trending downward (with hopefully at the bottom or very close to it now) :( .

So given this, what should I do:

1. Sell shares immediately after purchase and pocket the $20 (and deal with the hassle of keeping track of the checks coming in the mail and depositing them in my bank)
2. Sell every 3 months or so - and take the chance of the stock price going down, thus wiping away the discount that the ESPP offers
3. Opt out of the program
4. Anything else

Thanks for your help and advice.

ved
Posts: 690
Joined: Sat Jan 18, 2014 6:56 pm

Re: ESPP redemptions

Post by ved » Thu Sep 17, 2015 7:51 pm

bump.

yosef
Posts: 337
Joined: Tue May 24, 2011 2:10 pm

Re: ESPP redemptions

Post by yosef » Thu Sep 17, 2015 8:34 pm

This sounds like an unusual plan. The frequency and prices of the purchases seem to work against you compared to a "normal" ESPP regardless of whether the stock is trending up or down. I don't really have any advice but am curious to hear what others would recommend.

Dandy
Posts: 5216
Joined: Sun Apr 25, 2010 7:42 pm

Re: ESPP redemptions

Post by Dandy » Fri Sep 18, 2015 7:33 am

I believe after the 2 year waiting period any gain is at capital gain rate vs ordinary income rate. So, if that is the case you need to consider whether the difference in taxes is worth holding it. I think the reason people encourage the quick sale of shares is three fold: 1. you get a immediate profit (usually) close to the employee discount. 2. When you hold there is an increasing risk of having too much invested in a single company, especially one that employs you so if it goes into hard times you could lose a lot of your investment and your job. 3. If you are fortunate to have gains and are in a high tax bracket it is hard to sell and increase your taxes.

I saw a lot of execs at my company load up on company stock and as it suffered in 2008, going from 120 to about 9, they held on to most of it because to sell their large position would have created massive tax liability, even at the cap gains rate. Many have loss carry forwards they will surly outlive. The stock is about 40 now. Also, when a company is failing there is a lot of internal misleading communications indicating things are turning around. Employees tend to drink that cool-aid. I drank some. :oops:

My advice is sell immediately or sell immediately when any gains will be taxed at cap gain rate. Never let the company stock equal more than 5% of your portfolio.

Tamales
Posts: 1232
Joined: Sat Jul 05, 2014 10:47 am

Re: ESPP redemptions

Post by Tamales » Fri Sep 18, 2015 8:33 am

How long is the subscription period (the number of pay periods where ESPP contributions are deducted)? Your post makes it sound like you can sell shares after each pay period and I've never heard of such a plan.

Not that popularity should be a determining factor, but I'd be curious if you know what percent of employees participate in your SPP, and among those, what percent opt for quick sale? The company has that info, and it's only a question of whether they will release it.

In some plans, the price you get shares at is the lower of the beginning or end date of the subscription period, and then x% taken off the lower one. Be sure to check whether your plan works that way, and it can sometimes mean a discount on the purchase date of signiticantly more than x% off the price on the purchase date.

ved
Posts: 690
Joined: Sat Jan 18, 2014 6:56 pm

Re: ESPP redemptions

Post by ved » Fri Sep 18, 2015 9:09 am

Thanks all for responding.

Tamales, Yes, the shares are purchased after each pay period, and can be sold pretty much right away (well, in a couple days, after the purchase is settled).
This is a mega, mega corp...I wouldn't even know who to ask for participation rates. And if I did, I may be put on some audit flags, as poking my nose where it doesn't belong :D

Per the plan document, the purchase of the ESPP shares:
the price you pay to purchase shares of stock is (100-x)% of the average market price on the last day of your pay period.....“average market price” means the average of the high and low composite prices of company stock on the New York Stock Exchange on a given day
For sale,
At any time, Plan participants may sell the shares they hold in their company stockholder account at Broker....If you sell shares purchased in a current or prior Offering Period, your enrollment continues unchanged.

Tamales
Posts: 1232
Joined: Sat Jul 05, 2014 10:47 am

Re: ESPP redemptions

Post by Tamales » Fri Sep 18, 2015 9:45 am

Thanks for clarifying ved. That's an odd plan, or at least I've not heard of one like that before. My initial reaction is I'd pass completely; too much hassle for minimal payback and already have too much of your livelihood tied up in the company via your salary. It seems like they designed the plan to almost force you to hold (and take market risk) rather than do a quick sale. Probably couched in some language like "show how much you believe in the company by holding your ESPP shares," which is nonsense. Your continued work there is enough company risk. Stock performance is sometimes not coupled to company performance anyway, and you aren't being compensated for that risk in the way your plan is set up. If you had longer subscription periods it makes more sense since you lose far less to transaction costs for quick sale. But with transactions every pay period I think it loses appeal.

ved
Posts: 690
Joined: Sat Jan 18, 2014 6:56 pm

Re: ESPP redemptions

Post by ved » Fri Sep 18, 2015 10:00 am

Thanks Tamales.
I think you confirmed what I suspected, but didn't want to believe - maybe I am drinking the kool-aid too much. :D

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