# I'll be buying my employer's public shares in a share purchase plan



## MrBlackhill

I changed job recently. I used to work for small companies and a head hunter go in touch with me and I accepted. I'm now working for a bigger organisation.

They have that program which allows us to buy their shares. They are listed on TSX and actually also on NASDAQ. Anyways. I'd be buying TSX shares.

It allows us to spend up to a certain percentage of our salary to buy shares. Also, up to a certain percentage of our salary, the company will equal our contribution. Basically, that means getting more for the same expense.

Any opinion or advice on that kind of program?

I've also already been in a small company where some people had the opportunity to buy their private shares.

Anyone wants to _share _their experience?


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## fireseeker

MrBlackhill said:


> It allows us to spend up to a certain percentage of our salary to buy shares. Also, up to a certain percentage of our salary, the company will equal our contribution. Basically, that means getting more for the same expense.
> 
> Any opinion or advice on that kind of program?


Congrats on the new job.

As for the share purchase plan, I participated in one. It was a little different than many: There was no employer match, but they essentially provided a low-cost option. The SPP vested over two years of payroll deductions. Subscribers were guaranteed to pay the lower of a) the opening price or b) the closing price. You could withdraw your accrued contributions before the SPP closed.

I signed up each year. The company was struggling, however, and only once was the closing price higher than the opening price. In all the other years I pulled my money just before close.
The one year I took the shares I got them at a guaranteed profit of more than 100%. And then -- and this is the important part -- I immediately sold them.

These plans are great to take advantage of the employer match or subsidy. They do allow employees to grow savings.
BUT, you do not want to hold the shares. You are already heavily invested in the company: you are counting on it to provide years worth of employment. You don't want to leverage any further into it.

Over-leverage was the sad fate of many Enron employees. The company failed, costing them their jobs and their 401k Enron stock holdings all in one awful swoop.


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## cainvest

MrBlackhill said:


> I changed job recently. I used to work for small companies and a head hunter go in touch with me and I accepted. I'm now working for a bigger organisation.
> 
> They have that program which allows us to buy their shares. They are listed on TSX and actually also on NASDAQ. Anyways. I'd be buying TSX shares.
> 
> It allows us to spend up to a certain percentage of our salary to buy shares. Also, up to a certain percentage of our salary, the company will equal our contribution. Basically, that means getting more for the same expense.
> 
> Any opinion or advice on that kind of program?
> 
> I've also already been in a small company where some people had the opportunity to buy their private shares.
> 
> Anyone wants to _share _their experience?


I was in this position a number of years back. The reason to buy shares more or less remains the same ... is the company a good investment, as in, did you buy shares in this company before you worked there? Also be mindful of regulations (may depend on what your position is there) you may have on trading blackouts and such. Also see if any other kind of restrictions they may place on those shares, when and how much you can sell and what happens to them if you're no longer employed by them down the road.

Two things come to mind ... First, the lure of company equaling part (or all) your contributions can be a strong incentive but don't let that alone be the reason to buy in. Second, I personally don't like the double tie of having both investment (if you plan on having a significant weighting in their stocks) and employment income from the same source.


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## andrewf

I would suggest periodically selling if this holding represents an undue proportion of your portfolio. Often, there are limits on how frequently you can sell without penalty or without unenrolling in the program. In general, you shouldn't be over-exposed to your employer as the share price and your continued employment are probably correlated.

I would also only participate if there was a company match.


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## Plugging Along

I have always bought the company shares up to the point a company will match. It's a free return. I have worked for larger companies that were solid, so would have invested in them anyways. If you think it's a good company and there is a match, I generally take it.


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## MrBlackhill

fireseeker said:


> you do not want to hold the shares





cainvest said:


> did you buy shares in this company before you worked there?


That's what I find hard to gauge. I know I'm currently biased by the excitement of working at a new place. So far, I've been pretty impressed by all what I've seen.

No, I didn't invest in that company before, maybe because it's a <200M market cap, but it would definitely be a good candidate based on my way to analyse stocks : P/S < 0.75, P/B < 2, D/E < 60%, revenues growing 30% per year, almost profitable, so it's definitely a buy in my opinion! And I also know they went from 200 employees to 2000 employees in a matter of about 7 years. Growth is definitely present, but I can't predict their next plateau. COVID quarter was hard on the earnings, but while many were losing their jobs, they were on the fast-track to hiring more and more people.

I mean, I wouldn't want to skip on something that could be the next Shopify (obviously a bad example, let's just say something that could be the next CGI for instance)...



andrewf said:


> I would suggest periodically selling if this holding represents an undue proportion of your portfolio. Often, there are limits on how frequently you can sell without penalty or without unenrolling in the program. In general, you shouldn't be over-exposed to your employer as the share price and your continued employment are probably correlated.
> 
> I would also only participate if there was a company match.





Plugging Along said:


> If you think it's a good company and there is a match, I generally take it.


Yes, exactly, I don't want to be over-exposed either. I plan to spend only the amount which is matched. There's also a match on a RRSP plan. I always take the amount matched on anything an employer will match (unless it feels like a truly bad investment).

There's also some big psychology going on. I recall that in my previous job, the founder did sell private shares for employee loyalty purposes. Some of the early employees also had some insane salary. Good for them, but, as it was a very small company, it can also put stress on performance and once you get used to some salary, it's harder to change job for a significant drop. I felt it was unhealthy.

In my current new job, I believe there will be some similar psychology going on, but at a lower extent. I'll definitely have to be rational on my exposure.


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## Rusty O'Toole

I was offered the same deal when I started work for General Foods in 1972. I figured there must be a catch if they were offering to sell me $1 bills for 50 cents. But there is no catch, they print the shares so they cost them nothing and having employees with a stake in the company leads to better performance, less waste and more loyalty.
I think at the time GF shares were around $10 or $20. About 10 years later they were bought out for $140 a share. Some guys had enough shares by that time to retire.
Look into the fine print like, how long before you can get your hands on the shares? And any other details. And how much faith do you have in the company? If you figure it will still be around in 10 or 20 years, and they have a decent track record of growth I would buy all I could get.
I'm still sorry I was too goddam dumb to do the same but I was only 19 at the time.


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## Suzuki12

My employer had an ESOP where they would contribute 50% of whatever the employee did. Their max input was $10,000/year paid every April. I took part for years and every year as soon as I got the company contribution I sold it all. I didn’t want my salary, pension and savings all tied up in one company. Worked well for me. Retired now.


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## james4beach

I've also been in employee share purchase programs before.

I decided to sell the shares as soon as I could (as soon as they were unlocked). Otherwise I would be overly concentrated in the company, both through employment and share holdings.

If you read older CMF threads you will see how many people here had this double-whammy in the energy sector. During the boom years, many O&G workers had extremely high incomes, plus huge holdings of shares which kept gaining in value. And then when global energy went into a slump, they suffered a double whammy: lost their jobs, and shares crashed.

Same thing has happened to people in tech before.

You should definitely take advantage of any employee stock plan, but I don't like the idea of holding onto shares where I work, or even concentrating into my sector of work. Over my working years I have always steadily liquidated the shares I got.


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## Numbersman61

My experience has been very positive but i caution that there are potential pitfalls - best not to borrow to fund stock purchases since if company gets into financial difficulty, you could lose your job and still have the debt. The value of the company contribution will be a taxable benefit.


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## MrMatt

As others have said, take the match and sell ASAP.

I wouldn't invest in my employer (see Enron). 
Not that they have been bad, but it's simple diversification rules, even good companies have bad times.


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## P_I

MrBlackhill said:


> I changed job recently. I used to work for small companies and a head hunter go in touch with me and I accepted. I'm now working for a bigger organisation.
> 
> They have that program which allows us to buy their shares. They are listed on TSX and actually also on NASDAQ. Anyways. I'd be buying TSX shares.
> 
> It allows us to spend up to a certain percentage of our salary to buy shares. Also, up to a certain percentage of our salary, the company will equal our contribution. Basically, that means getting more for the same expense.
> 
> Any opinion or advice on that kind of program?
> 
> I've also already been in a small company where some people had the opportunity to buy their private shares.
> 
> Anyone wants to _share _their experience?


Perhaps you might consider clarifying the thread subject because I thought you were talking about the situation where you were considered an *insider per security regulations*, i.e. subject to Insider Reporting rules and restrictions.


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## MrBlackhill

P_I said:


> Perhaps you might consider clarifying the thread subject because I thought you were talking about the situation where you were considered an *insider per security regulations*, i.e. subject to Insider Reporting rules and restrictions.


Oh, sorry, I wasn't aware of the exact meaning of "insider shareholders". Thanks, I'll clarify.


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## ian

I used my employer share purchase plan for 25 years. Instant money. The trick is to drink the Kool Aid. Treat the shares like any other investment. Same for options.

One thing that you need to be aware of. The share base price, for tax purposes, will be established when your stock plan gets converted to stock...perhaps once or twice per year. The difference between what you paid for the stock and the then current TSX price will be deemed to be income. Your employer will add this to your T4 information slip.

Over the years I did very well on my employee stock purchase plan. Essentially I was guaranteed a return of 30 percent if I sold immediately. Sometimes I sold, sometimes I held on depending on the market.


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## Rusty O'Toole

I agree with taking advantage of the chance to buy cheap stock but dumping it immediately to me, is diversification gone mad. I would treat them like any other investment once vested and keep or sell depending on how sound the company was and how the stock was performing. If I didn't have any other investments I might sell half and invest the money elsewhere.
Another angle no one has mentioned, if you invest a fixed amount out of each pay check you are dollar cost averaging, a good way to average down your cost. But it doesn't work if you stop buying when the stock dips.


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## cainvest

P_I said:


> Perhaps you might consider clarifying the thread subject because I thought you were talking about the situation where you were considered an *insider per security regulations*, i.e. subject to Insider Reporting rules and restrictions.


I thought so as well, that's why I included a little info on being careful with trading restrictions. Those restrictions are normally contained to high level management (CEO, CFO, board of directors, etc) but can extend downstream to some employees. It is mainly there to protect those from making profit on upcoming news releases and such.


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## P_I

MrBlackhill said:


> Oh, sorry, I wasn't aware of the exact meaning of "insider shareholders". Thanks, I'll clarify.


No problem, just seeking clarity. I've been in both situations. 

As an employee with the ability to purchase shares in the company, either via company match or discounted price. As others have advised, have the discipline to maintain an appropriate allocation to the company in your investment portfolio, selling as necessary. Nothing worse that having your employment and a significant portion of your investments tied up in the same company. Remember too that you view of the companies prospects are mostly likely through rose coloured glasses. Another strategy that worked for me during the dot com boom, use the proceeds when selling company shares to invest in an alternative, out-of-favour, sector for diversification purposes. 

In the case where you are a corporate insider and subject to restrictions and reporting requirements, it becomes a much different story. Selling to reduce exposure to the company and diversify your portfolio can and often does have negative implications/perceptions among your peers and could impact future career opportunities. It becomes very tricky to manage.


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## pwm

I've been retired for 15 years after working for one of Canada's 3 largest Life Insurance companies for 35 years. Back in 1990 they implemented a stock purchase plan. You could signup for from 1% to 5% of your pay to go towards buying company stock. The company added $1.00 for every $2.00 you contributed. They bought shares every month with no commission and the dividends were re-invested quarterly also with no commission. Their contribution showed up on your T4 slip as "other income" and was taxable as such. I signed up for 5%. I've kept the stock which is now worth ~ $562,000 at the current trading price, and pays me $33,084 per annum in dividends. That is more than my company pension. All that for just signing a form and sending it off via internal mail to the Human Resources department. (It was called the Personnel Department in those days.) I never even noticed the small reduction in take home pay. You asked for my experience and there you have it. Of course I was with a great company and it worked out extremely well for me. If I was with Nortel it would have been a bit different.


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## Retiredguy

Yes very company dependant. I'm sure lots of TD employees could also tell a story like yours.


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## Money172375

Retiredguy said:


> Yes very company dependant. I'm sure lots of TD employees could also tell a story like yours.


I can. Not sure if it was the right decision, but I put all my shares in a non-reg account. Everyone else I know put theirs into RSPs. TD would match your contribution up to $2250 a year IIRC. I’m missing the first few years of my stock ownership statements, so haven’t been able to nail down the ACB 100% yet.


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## pwm

My ACB is ~ $8.14. Today the stock is trading at $29.79. A bit of an unrealized cap gain there!
My stock is in a non-reg account.


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## P_I

Retiredguy said:


> Yes very company dependant. I'm sure lots of TD employees could also tell a story like yours.


Enron employees, like Nortel employees, would provide the counter-example.


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## Rusty O'Toole

As for the danger of the company going broke I would think an employee would be in an excellent position to see signs of trouble before anyone else. There is a difference between a temporary problem that causes the stock to dip and a chronic problem that will kill the company.
Wonder if the tax problem could be reduced by putting the shares in an RRSP?


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## MrBlackhill

I plan to hold the shares in my TFSA as I have room and I believe that when a stock is expected to grow then it's better in a TFSA than in a RRSP, am I right?

I've been told the employer contribution could only be in non-registered or RRSP, but I saw the TFSA option and I wanted to confirm with the managers of the plan, but I haven't got any answer yet...


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## ian

I know some folks in the IT business who hung on to shares and did not sell when they should have. Even worse for some with options. They drank the kool- aid instead of selling the shares or exercising the options. Or the opposite...exercise the options too early in order to buy some depreciable asset. Treated both like company people instead of like a careful investor would. I dumped what was left of my 15 and 20 dollar options when I retired early. The market was at 50-55. A few years later it was 18, and it has been in that area for the past several years. I did not want to jeopardize my retirement plans by hanging on to them. Downside risk at that point in our lives far exceeded the upside.


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## Covariance

I have been part of a number of these plans. Made money on all. Great input above. A couple of additional thoughts.

When you receive title to the stock you have a taxable benefit equal to the difference between the FMV when they gave them to you and what you paid. This taxable benefit is taxed at the rate of regular earnings. Your ACB is the FMV (not the discounted price because you paid tax on that discount). They may be giving them to you monthly (but only available to you at year end or when you leave), at year end, or some other date. In any case when you have title you establish your ACB.

Other than shielding in-year capital gain, not clear to me what benefit there is in having them run an RRSP or TFSA for you to acquire these shares. I would look into the admin cost of this account and any issues you may have later if you wish to move assets out. When you have control over the shares (typically after year end) you can transfer to your TFSA, or RRSP (and get the normal RRSP deduction). You give up the flexibility of separately contributing to TFSA, RRSP programs. Finally if it turns out to be a dud you can not use the capital loss if it is in an RRSP or TFSA.


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## andrewf

cainvest said:


> I thought so as well, that's why I included a little info on being careful with trading restrictions. Those restrictions are normally contained to high level management (CEO, CFO, board of directors, etc) but can extend downstream to some employees. It is mainly there to protect those from making profit on upcoming news releases and such.


I'm not particularly high level, but am subject to blackout periods on my RSUs.


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## Sleeponit100

I participated in my company's plan as well(now retired as of this year).
Similar to others I imagine- company matched 40% up to a maximum 6%(taxable benefit-so you are taxed on it as if it were income) of your gross pay.
Company's portion couldn't be sold for 1 year. It was managed by Computershare so the employee shareholders benefited from a DRIP setup.
I would have made a killing if I had left every share in the plan and not sold them as I needed the funds for expenses like mortgage payments, vacations, RESPs-the list goes on forever.
I currently have barely any shares with my former company.


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