Employee Stock Purchase Plans (ESPPs) look great on paper. They provide employees with the opportunity to buy a piece of their company at a hefty discount. As you well know, the value of these plans can help employers attract and retain talent in this tight labor market. Stock purchase plans also help build a sense of ownership, loyalty, and engagement among workers. It’s an apparent win-win for both employers and employees. Upon closer review, ESPPs are not running as smoothly as might be expected, but a considered communications strategy can help ensure the success of your company’s offering.
Signs of Trouble
The first sign of trouble is lagging employee participation. According to the Global Equity Insights 2017 survey, the global participation rate (26%) is less than half of what employers are targeting (60%). These dismal participation rates for a clearly valuable equity offering suggest that the true worth of ESPPs is not being effectively communicated. The lack of traction among employees is mirrored by dissatisfaction on the employer side. In the 2016 Joint ESPP Survey, only 36% of companies reported being “very satisfied” with the return on their ESPP investment. Further complicating matters, employees sometimes follow misguided advice and sell their stocks as soon as possible in order to minimize risk and take advantage of the guaranteed return. This behavior negates the long-term ownership and retention goals of ESPP programs.
Communication: The Missing Link
Employers are responding to the low participation rates by adjusting plan design to make ESPPs more attractive to employees. More plans than ever now qualify for favorable tax terms under Section 423 and include lookbacks and the maximum allowable discount. But changes to plan design are evidently not enough to drive awareness and participation. More attractive plan design must be accompanied by a thoughtful communications approach.
Two case studies illustrate the considerable impact of a deliberate communications strategy: Baker Hughes, an oil services provider based in Houston, almost doubled its participation rate (from 18% to 35%) just by changing its communications approach. Likewise, the medical technology company Hologic was able to successfully increase participation, first by changing plan design and then by augmenting those changes with robust employee outreach. Their “new” approaches shared some important characteristics: compelling digital content, including mobile-friendly videos, released to coincide with program milestones. For its first communication, Baker Hughes created an award-winning educational video that they distributed in the middle of an ESPP enrollment period. This action alone helped improve program participation by 11%.
Why a Multi-Channel Campaign Approach Works
Baker Hughes and Hologic found success because their communications matched evolving employee expectations. Engaging mobile-friendly content breaks through the noise that characterizes our media ecosystem, because the content is both convenient to access and resonates with the viewer. Plus, digital content can be easily translated into multiple languages, making it easier to reach a global or dispersed domestic workforce. Finally, digital content can be easily tailored to target different employee populations, increasing the effectiveness of outreach.
But creating quality, engaging content is simply not enough. Baker Hughes found such success with their approach because they used multiple channels to distribute their content and timed their campaign when it was guaranteed to have the most traction with their employees: during their ESPP enrollment period. The next logical step in this approach is to steadily release communications throughout the year, using multi-channel marketing-style campaigns. A multi-channel approach can combine more traditional forms of employee outreach, like posters or postcards, in addition to more sophisticated channels like SMS messages. A multi-channel approach creates more opportunities to connect with employees and allows you to reach non-desk workers, including employees who work in manufacturing or retail settings.
Campaigns can be easily segmented according to eligibility, location, and/or demographics, allowing you to direct employees to content that’s relevant to their particular situation. For stock programs in particular, you could model the campaign after the lifecycle of your stock purchase plan. In other words, communications could be timed to coincide with the ESPP enrollment periods, the purchase dates, and tax season.
Taking Advantage of Tax Season
At GuideSpark, we’ve seen that campaigns are extremely effective at connecting employees with pertinent content at times when they will find it most useful and engaging.
Running a campaign that informs employees about ESPPs and taxes during tax season can be particularly effective. The deadline to file taxes is fast approaching, so this time period is a great opportunity to begin or augment communications around your offerings. In addition to driving participation and awareness, such communications improve the return on your ESPP investment in the following ways:
- Minimize unexpected taxes and the associated negative response. Employees who sell their ESPP shares long after purchase have a tax obligation that they may not be prepared for or understand. Continuously educating employees on their tax obligations could head off negative perceptions.
- Encourage long-term ownership of the stock. By equipping employees with information on the considerable tax advantages of holding on to stock, employers can make a more persuasive case for long-term ownership.
For these two reasons, tax season presents the perfect opportunity to educate employees on their plan’s benefits and value. In summation, if you’re looking to drive ESPP participation and a long-term ownership mindset, consider a multimedia campaign approach to augment whatever plan design changes you’re contemplating. Not only will you get happier, better rewarded employees but you’re also likely to retain them for longer periods of time, no small feat given today’s increasingly mobile workforce.