Choosing NOT to participate in my employee stock plan
My current employer offers employees a chance to purchase company stock at a guaranteed discount. You enrol in 6 month periods and allocate a certain percentage (2% and up) of your salary towards purchasing stock. While there is a maximum number of stocks that you may purchase at one time (it’s a very high number…), the stocks are yours without restriction and you can sell them at any time you wish. The deadline for signing up was this past Friday.
I debated for a while, but ultimately, decided not to sign up. What!?
Photo Credit: lumaxart via Flickr
It wasn’t an easy choice. There are obvious financial benefits:
- You get the stock at a discount
- You can sell the stocks at any time, likely for a profit
- The money is taken right out of your paycheque – Easy!
However, sometimes (even for me!) the choices that seem to make the most sense are motivated by reasons other than pure numbers.
- My current budget would have allowed me to use 1% of my salary each paycheque towards stock purchases, but the minimum contribution was 2%. It doesn’t seem like a big difference, but the amount adds up. I would have had to re-do my budget in order to accommodate the additional deduction. I’m pretty happy with my current budget and did NOT want to re-do it.
- I have my yearly employee review coming up in April. At this time, I expect to receive a small raise (I’ve only been here 4 months so far, after all!) and would need to re-do my budget at this point anyways.
- I already max out my employee RRSP plan, which takes up 6% of my salary and gives me a company match.
Even though it was tempting to sign up and make a quick buck, in reality, I would have only accumulated a handful of shares by the end of the 6 month purchasing period. There is not really enough potential for profit to justify reworking my budget ahead of schedule. Instead, I think I will wait until the next enrolment period. At this point, I should have received my raise and be able to easily cover the 2% contribution. Perhaps even more!
Have you ever chosen to walk away from a potential investment or income opportunity? What would you have done in my situation?
40 Responses to “Choosing NOT to participate in my employee stock plan”
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If you have annual enrollment, then I think you played it right. If it is not in your budget and you won’t get much out of the 6 month purchase program, then you made the right choice for you.
That’s how I felt – It’s lazy, but it’s only 6 months away.
I would agree with Grayson, if it’s not in your budget and you don’t get much out of it then it’s the best choice for you. I’d probably do the same thing.
I wish they had a 1% option, because that would have been perfect for my budget right now! Oh well… 6 more months!
I don’t know enough about your overall situation to know if you made the right choice. However, with my clients (back when I was an advisor) we used these plans a little differently. We’d accumulate shares at a discount. Hopefully the stock maintained its value. Even if it didn’t the stock could go down 10 to 15% (depending on the discount) and my client was still at “break even.” Then we’d diversify once every six months to take advantage of the free return. I’m not big on loading up on one stock, so diversifying it out was an important part. Usually we got a free 15% return, too!
That sounds similar to what we get. The stock is offered at 15% discount from the lowest price that the stock hits during the purchasing period. It has potential to be quite profitable.
I chose to decline when I first started with this company as well. It was because the shares take one year to vest and the position I was given, though permanent, was probably going to be temporary. I would have tied up the money for awhile but not received any of the upside (unless the stocks purchased with my contribution went up in value).
For us, the shares were ours immediately. Still, for the number of shares I could get with the minimum contribution, the process of re-working the budget would not have been worth it since I will need to re-work it again this spring/summer anyways.
A family member of mine had a share discount scheme available for a very reputable British firm. He couldn’t afford to use it at the time so my grandad gave him a regular monthly sum to buy the shares as part of his inheritence. I don’t know if it’s even legal but he ended up with a sizeable share holding. So do you have a rich relative?
I wish! Most of my relatives are not on speaking terms with my particular branch of the family. My parents were considered the “poor relations”
Certainly the decision was yours and what you were comfortable with considering your budgetary constraints, but much like a company match, turning down “free” money is a tough decision no matter who you are. In your particular case, the opportunity cost of reworking the budget outweighed the benefit derived from a potential 15% gain on your investment over the next four months. Once you *hopefully* get your raise, I would definitely see if you could rework things to pick up some of your employer’s stock!
I’m quite certain I’ll receive a raise. I’ve never worked at a company that did not award at least a cost-of-living raise each year. I’m not certain if that’s considered unusual, but Brian has had the same experience.
In terms of money lost – that is always a possibility, but at this time, not enough money is lost for me to consider cutting back on other items in my budget. We had some family issues with my parents that ended up eating a chunk of my budget for the next few months as well, so that didn’t help :S
That sounds like a good plan. Wait until you can afford it in your budget. Good thinking!
Hope the stock price doesn’t prove me wrong! Haha.
It’s a double edged sword – I also own several hundred shares as part of my signing bonus. So if the share price increases, my bonus is worth more! But then I’d be very sad about not jumping on the stock plan earlier. :S
My BF’s company is growing insanely fast and is insanely profitable. That said it seems that for those on the inside management leaves something to be desired (we planned to partake in the stock plan but red tape/disorganisation means that though we signed up and filled out the forms I am not sure if anything ever actually happened on that front!) Anyway he won’t be there much longer so it’s now a moot point.
That’s something that really bugs me about all of these plans and incentives – so much freaking paperwork! I still haven’t claimed some of my California expenses actually because the paperwork is mind boggling.
I don’t know how it works for you guys, but when Mr. PoP participated in an employee stock purchase program before we were married, we got stuck with having to pay income taxes on the capital gains when we sold it because it hadn’t been held long enough. I was never 100% clear on the whys and hows since most of this was before we were married – I just had to deal with the tax fallout in year 1 of marriage. =(
Ouch! That sucks. I wondered about the capital gains tax issues as well when I was debating the plan. I don’t know enough about it yet but I’ll have to look into it during the next purchase period.
I don’t invest in a company I work for. It’s a rule I set for myself years ago. When I worked at Lehman Brothers, many of my coworkers had worked for Drexel Burham Lambert before that. Seeing as how the company was riding “high on the Hog” they invested heavily in it. When the Junk Bond crisis killed DBL they went from being “semi-rich” to jobless and broker overnight. That’s probably an extreme example but one I always have on the back of my mind.
That’s so sad! I would not want to invest a huge amount in a company I worked for, but I’d still consider investing a bit. Just not yet!
I chose not to take the retirement match at my last company in order to save more, and invest in real estate instead of a fund I couldn’t touch for another 40 years. I would have done the same.
Yeah it’s all about what works for you! And for me, I already contribute to the company RRSP plan – it’s actually a pretty good ETF based plan managed by SunLife – but rearranging my finances to buy company stock was not (yet) worth it I think.
I think I’m with you in that I would have waited. It’s not the end of the world to wait a few months (or a year) especially considering you’re already contributing a decent percentage to your RRSP!
What could happen in 6 months right? *knock on wood*
I signed up for my ESPP, but I’m going to lower my contribution next go around in November. I think I’m contributing a little too much back into my company. Plus, I have to hold my contributions for 3 years before I become vested with matching shares. Then, I’ll probably have to hold them a little longer to not get taxed at the short term capital gains.
All the time, I’m not controlling when they are purchased.
Ours are purchased all at once, at the lowest price minus 15% during the 6 month purchase period. We are vested right away too, which is nice.
I was awarded some stock when I joined the company which I have to hold for 3 years before becoming completely vested – so I sympathize! I’ve been watching the stock price rise and not being able to sell off my shares is frustrating.
How big of a raise are you expecting?
I have worked at my company for six-seven months, and my yearly review is coming up. Should I be expecting/asking for a small raise?
I would expect at least a cost-of-living increase of 2-3%. At every company I have worked at, I’ve always received a cost-of-living increase at the annual review.
I’m hoping to get something closer to 4% in total.
It depends on your field I guess, but when I worked in healthcare/research, we received 2-3% each year. In software development now, 4-10%. Likewise, Brian works in project management and receives 4%-10% each year.
I’m maxing out my contributions to my EOP (Employee Ownership Plan). I work for one of the major Canadian banks and they match my first $250 a year and then do a 50% match after that for 3.5% of my salary. I’m now fully vested and can withdraw from it once every quarter. So now every quarter I transfer it to my self-directed TFSA. That way my taxable capital gains and dividends are very minimal.
Once we have kids I plan to transfer the funds instead to an RESP. That way I get the 50% employer match plus the 20% match in grant money.
Nice! Was it hard/expensive to transfer? At my company, our shares are held at Etrade and when I do sign up, I would prefer to transfer the shares into my own account.
Nope it was easy and free! Keep in mind that I’m keeping the funds within the same company. I’m transferring straight to my own employer’s direct investing product.
I don’t see any issue with no signing up in your situation. You can always join in later when there’s more room in the budget. Since the discount in my company’s program is 15% and the budget is nowhere near being tight at the moment, I couldn’t pass up that big of a discount. Especially when the markets were beaten up.
I’m definitely looking forward to joining 6 months from now. It’s a good discount and our company stock is rising, but still on the low side. Hopefully the outlook will still be optimistic in 6 months!
There is a lot of evidence to suggest that investing in an employee matched plan makes many of us emotional investors. By that we tend to forget obvious concerns with the company’s stock and favor our own experiences with the company.
Another consideration for not contributing may be that the company you are working for is only a temporary fill and you know that.
I hope to be with my company for a while, but I’m not sure that our stock is the best investment for me. That’s why I’m not super keen on putting more than 1-2% of my salary towards it, even with the discount. We work in a volatile industry so the stock price isn’t always consistent.
Buying stock in your employer is a poor diversification strategy. If your employer goes in the tank, your lose your job, and the value of your stock sinks.
My aunt worked for IBM for 30 years and had most of her money in IBM stock. IBM laid her off right after the stock dropped by 60%. Thanks for all the years of great service!
Oh that’s terrible! Yeah my employer has had lay-offs in the past and who knows what will happen in the future. I have a co-worker who’s putting 10% of his salary into the company stock and to me, that seemed like a lot of money…
You’re probably not missing out on much anyway. And maybe the markets will work in your favor. That’s pretty cool to hear about how compensations work at other companies. For us, in case you were curious, we get 4% match, similar to your 6% system, but no stock purchases or any kind of options. Not as fancy, but better than nothing
Any time you can get free money, it’s a good thing I think
Depends on what company you work for?
I assume you dont wanna reveal that.