# Employee share purchase plan



## punter (May 6, 2012)

Employees may elect to contribute up to 5% of their gross salary, or a maximum of
$10,000 per year, whichever is lower. The Corporation
contributes an additional 20% to the employee’s
contribution, and pays all administrative fees on the
purchase of shares. 


Hey all, I was just want to make sure i understand this. For the 5% I contribute, the company will match 20% of 5%? So for every 5%, they'll give me 1% of my gross salary?


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## MRT (Apr 8, 2013)

That sounds about right.

I worked in the financial sector for years, with a similar group plan (mine was 3% of gross, with another 1.5% from the company).

1. No transaction fees.
2. You benefit from 'dollar cost averaging', as you slowly accumulate shares each pay period.
3. You typically don't need to purchase whole shares each time, as they will track fractional shares.
4. Their % matched is essentially free money for you.

It is a complete no-brainer to participate, IMHO (depending on the company, of course), but you would be surprised how many people don't take advantage of these plans.


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## jcgd (Oct 30, 2011)

Yeah, the amount of young people I know giving up free money is startling. My company gives us 100% match on 5% of our salary. Plus we get a 5% discount on company shares, new cash coming in as well as reinvested dividends. Most people complain that they can't afford to contribute. I don't understand their math, every pay cheque I make up to $300 more than the next guy who's saying he can't afford to make an extra $300.


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## Potato (Apr 3, 2009)

Especially strange when you consider that it's not like that $300 is gone forever and can never be spent. Just cut back for a year or whatever the vesting period is -- or even borrow on a LoC! -- and then the next guy can start selling shares so he doesn't end up totally over-weighted in your employer's stock. If he really needs the cash to spend, well, he'll get it back after that period (plus/minus market variations).

Punter: be sure to find out what the rules are regarding how to transfer your stock into your own account so you can periodically sell it.


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## pwm (Jan 19, 2012)

Don't hesitate. Sign up for 5% immediately. This is the best deal you will ever get.

My story: My company, one of the big three Lifecos, started an employee share purchase plan in 1990. The company contributed 50%, dividends were re-invested, and there were no commissions or fees. I went for the 5% max contribution. The stock split 3 times during that period, and the dividend increased every year. In 2005, I retired at age 55 with around $500k in company stock. The dividends are now equal to my pension.

Why everyone didn't join the plan is incomprehensible to me. Some people just can't recognize a golden opportunity.


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## Charlie (May 20, 2011)

I agree with the choir. Only reason not to join up is if you have serious doubts as to the company's future. If that's the case you should be looking for another job....


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## mbmb (Oct 17, 2012)

My husband’s company has a discount employee purchase plan: you can purchase a total of $20.000 stock in a year or 100% of you salary, whichever is less. The price of the share is provided to a employee at a 15% discount from the price of the previous day FMV/share. The company doesn’t contribute with anything additional, other than offering the discounted price.

As of a first impression after reading the general information provided on intranet the purchase cannot be sheltered in TFSA or RSP or RRSP. The purchase is subject to a minimum holding period. They mention applicable fee, but there is no schedule of fees handy. I am planning to call and ask a couple of questions.
What are your thoughts on this?


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## james4beach (Nov 15, 2012)

How long do you have to hold onto the stock? That's the key question I think. In other words how long is the value stuck in the form of stock and exposed to market fluctuations?

I do not recommend holding stock in a company that employs you. But if the plan lets you dump the stock pretty much immediately with no exposure to market price fluctuations, I say go for it.


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## james4beach (Nov 15, 2012)

pwm said:


> Don't hesitate. Sign up for 5% immediately. This is the best deal you will ever get.
> 
> My story: My company, one of the big three Lifecos, started an employee share purchase plan in 1990. The company contributed 50%, dividends were re-invested, and there were no commissions or fees. I went for the 5% max contribution. The stock split 3 times during that period, and the dividend increased every year. In 2005, I retired at age 55 with around $500k in company stock.


pwm, you got lucky (and I'm happy for you). But I don't think it's right to generalize from your lucky experience to broad advice that this is always going to be a great idea.

I have known several people who were paid heavily with company stock, watched it grow over the years, only to see it later plummet and destroy significant wealth. What if you had worked for Nortel instead? Or Citigroup? Bear Stearns? AIG? Lehman Brothers? MCI Worldcom? Any tech stock in the late 90s?

I think you got lucky because you made a huge bet on a single stock which happened to perform well.

I can share the opposite scenario personally. I worked for a company that also paid us partially in stock. I was careful to immediately liquidate my stock as soon as it was ready for sale. Today I'm glad I did, because the shares trade significantly lower than when I was given the shares. I am many thousands of dollars better off today, because I didn't hold onto company stock.


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## james4beach (Nov 15, 2012)

Or the thousands of employees at RIM.

Gambling on your company stock is still plain old gambling on stocks. Sometimes you win, sometimes you lose. Problem is that when you lose this game, you also probably lose your job at the same time. I say that if you take some compensation in company stock (which I did too) liquidate it the moment you can.


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## pwm (Jan 19, 2012)

You make a good point. You need to know that your company is sound.

However I think the points I made about regular payroll deductions over time that you never even miss, company contributions that are basically free money, re-invested dividends that are commission free, and dollar cost averaging all combine to make a stock purchase plan a compelling investment plan.


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## Janus (Oct 23, 2013)

Some good points made here. I certainly participated at the bank I worked at in Canada. But it's true that if you're actually going to work at this company your whole life (I didn't know people still do this), then yes you're going to be ridiculously over-exposed to its shares. It puts your incentives in the right place as an employee, but if the company does poorly all of a sudden both your income and your assets are taking a hit at the same time.


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## CanadianCapitalist (Mar 31, 2009)

I agree with j4b. It is highly risky to own a significant portion of your wealth in stock of the company that also pays your salary. Sure, some great fortunes were built on concentrated bets but countless fortunes were lost as well. That is not to say one shouldn't take advantage of free money in ESPP programs. Rather, one should take advantage of the discounts offered by these programs but also be diligent about controlling risk by limiting ownership in company stock to a small percentage of your portfolio. This can be done by regularly selling shares once or twice a year.


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## fraser (May 15, 2010)

Keep in mind that you will be t4'd on this based on the value of the shares when they are issued and the amount that you actually paid, ie the net gain. The market price on the day the shares are issued becomes the start of your adjusted cost base from a capital gains perspective.

If this is a multinational and the shares are held by a broker in the US be sure to fill in a W8-BEN form and forward it to the broker. I think that you need to do this every three years.


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## jcgd (Oct 30, 2011)

So what would you guys recommend someone like me do, where the company shares are held in a RRSP with a third party? The brokerage that holds my shares charges $0.02 a share to sell with penalties if you sell too often, and they charge $55 for an inter-broker transfer. I suppose I could just transfer it once per year so the $55 doesn't chew up too much.


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## nobleea (Oct 11, 2013)

My company has what is probably the worst employee share purchase plan. You can purchase as much as you want. But there is no discount, at all. AND you have to pay them something like 1% a year to manage it. It's actually a fund that is solely comprised of our stock, managed by Sun Life.
That being said, the stock is up 40% this year so far. It's a fortune 500 company.


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## mbmb (Oct 17, 2012)

james4beach said:


> How long do you have to hold onto the stock? T.


6 months
no dividend
price of the stock in 3 digits
US company

my current portfolio contains ETF diversified: CAD, US, International, and a 5% crazy things for trade. The ESPP stock has steady gain so far (no guarantee for future returns, I know), the company is extending internationally, but this would be first time for us to invest in individual stock. If we decide to go with this we have to reallocate the current portfolio.


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## Kail (Feb 7, 2012)

Mine will match 100% of the employee contributions, up to 5% of their salary. Shares can be held in a TFSA, RRSP or unregistered account. Over the years I have sold my portion of the company stock and kept the employer. Had I have kept mine as well I would have a lot more money. Our stock has been doing great lately. C'est la vie.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> How long do you have to hold onto the stock? That's the key question I think. In other words how long is the value stuck in the form of stock and exposed to market fluctuations?


It's very important to know this ... friends went aggressively into their plan because they could sell 6 months after signup, where the purchase price was the lessor of the signup date trading price or the 6 months trading price, minus 5%. So if the stock dropped, there were still looking at around a 5% net gain - assuming they sold at the 6 month date.

Others who moved to a different company had to signup, then would get the stock three years later and then could sell three years after that, which was a much different situation.




james4beach said:


> I do not recommend holding stock in a company that employs you.
> But if the plan lets you dump the stock pretty much immediately with no exposure to market price fluctuations, I say go for it.


This seems a bit of an over-reaction to the risks ... you really don't recommend taking advantage of the employer contributions, even if the amounts being put in are 2% or less of one's investment portfolio? 

I can understand a blanket statement like this where the company stock is one's only investment but so far, I don't recall any indication that this is the case. The question seems to be understand the program.


Cheers


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## physik3r (Sep 10, 2012)

This is win. I'm 5 years into a similar situation but unfortunately, there's no way I'll stay at this org for long enough!



pwm said:


> Don't hesitate. Sign up for 5% immediately. This is the best deal you will ever get.
> 
> My story: My company, one of the big three Lifecos, started an employee share purchase plan in 1990. The company contributed 50%, dividends were re-invested, and there were no commissions or fees. I went for the 5% max contribution. The stock split 3 times during that period, and the dividend increased every year. In 2005, I retired at age 55 with around $500k in company stock. The dividends are now equal to my pension.
> 
> Why everyone didn't join the plan is incomprehensible to me. Some people just can't recognize a golden opportunity.


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## KrissyFair (Jul 8, 2013)

I'm with j4b and CC. Take the match AS LONG AS you can sell the stock in a reasonable amount of time and then do. sell. the. stock.

Has everyone seen the Jim Carrey movie "Fun with Dick and Jane"? No one want to have to rob banks because all of their eggs were in a single basket that imploded.


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## mind_business (Sep 24, 2011)

My company matches 50% into a non-RRSP for every dollar we put into our RRSP. We can contribute up to a max of 6% of our gross salary, with the company matching to 3% max. We can withdraw twice per year, out of either the RRSP or Non-RRSP accounts, without penalty. Our plan used to be based on company share purchases, but over the last 10 years we've been allowed to choose from a variety of mutual fund options.

Any employee who passes on these opportunities are fools. It's those people that live for the moment, not wanting to save for a rainy day ... or retirement. Even though our program is quite mature (started in the mid-90's), we still only have slightly more than 50% participation. Crazy!


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> This seems a bit of an over-reaction to the risks ... you really don't recommend taking advantage of the employer contributions, even if the amounts being put in are 2% or less of one's investment portfolio?


Yeah my early statements probably came out sounding too extreme.

I say go for the plan (yes I agree it's free money) as long as you can sell in a reasonable time. 6 months sounds pretty reasonable. I would certainly go for that myself too, I just wouldn't keep accumulating the stock until it's a huge amount of company stock.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Yeah my early statements probably came out sounding too extreme.
> 
> I say go for the plan (yes I agree it's free money) as long as you can sell in a reasonable time. 6 months sounds pretty reasonable. I would certainly go for that myself too, I just wouldn't keep accumulating the stock until it's a huge amount of company stock.


That's where IMO, it's a combination of factors plus what one is planning to do.

If the holding period is one year, the stock is being bought with extra top up plus maybe a discount and the plan allows transfers of what one year old stock to my brokerage account, I might go for it. Once in the brokerage account, I can monitor & sell quickly if I need to. This will mean that the "at most risk" stock would be whatever is being bought in any given year.

Like you - I'd be cashing in once and a while to make sure I didn't end up with millions in one stock.


Cheers


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## KrissyFair (Jul 8, 2013)

mind_business said:


> Our plan used to be based on company share purchases, but over the last 10 years we've been allowed to choose from a variety of mutual fund options.
> 
> Any employee who passes on these opportunities are fools.


I know a lot of people for whom that statement is certainly true, but there is a big difference between a company-matched RRSP that allows a variety of investments and a share purchase plan. There is significant risk to concentrating your savings for tomorrow within the entity that provides your livelihood today.


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## mind_business (Sep 24, 2011)

KrissyFair said:


> I know a lot of people for whom that statement is certainly true, but there is a big difference between a company-matched RRSP that allows a variety of investments and a share purchase plan. There is significant risk to concentrating your savings for tomorrow within the entity that provides your livelihood today.


I would agree, but only if the person continues to hold the company shares within their plan. Most of these plans allow you to transfer funds out on a regular basis. Under these conditions, the initial matching contribution gives you an instant return on your original purchase, that you can't get with traditional investing. Again, people are not thinking it through if they don't take advantage of these programs. As I indicated earlier, my company's participation is just over 50%. Ridiculous!


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## Beaver101 (Nov 14, 2011)

mind_business said:


> I would agree, but only if the person continues to hold the company shares within their plan. Most of these plans allow you to transfer funds out on a regular basis. Under these conditions, the initial matching contribution gives you an instant return on your original purchase, that you can't get with traditional investing. Again, people are not thinking it through if they don't take advantage of these programs. As I indicated earlier, *my company's participation is just over 50%. Ridiculous!*


 ... maybe the 49% is not participating for other reasons such, they can't afford to (want to pay off the mortgage first), or the taxes (in a non-registered plan) far outweighs the "instant return" of the original purchase, or limited investing choices (eg. mutual funds only and how well are they doing?), or unstable work environment (all eggs in one basket?), or something else this 49% knows that you don't or simply your company did a poor job in promoting such a plan. Regardless, you can't force people to "participate" if they don't want to, crazy as you think they're not to. :chuncky:


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## fraser (May 15, 2010)

I usually cashed my stock every six months and put the money on our mortgage. Did the same with bonus money. I had enough invested in my employer without keeping stock. Sometimes I did keep it if I knew that a 'bump' was coming, but never more than an extra six months or so.

It is amazing how quickly you can pay off your mortgage when you do this....as well as keeping the payments at the same level, or higher.


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## KrissyFair (Jul 8, 2013)

mind_business said:


> I would agree, but only if the person continues to hold the company shares within their plan. Most of these plans allow you to transfer funds out on a regular basis.


And that's why a lot of the responses so far have included the caveat that it's great, as long as you can divest regularly and rather quickly - and as long as you then do so - rather than just putting a blanket of 'Ridiculous!' over people who don't participate.


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## mind_business (Sep 24, 2011)

Beaver101 said:


> ... maybe the 49% is not participating for other reasons such, they can't afford to (want to pay off the mortgage first), or the taxes (in a non-registered plan) far outweighs the "instant return" of the original purchase, or limited investing choices (eg. mutual funds only and how well are they doing?), or unstable work environment (all eggs in one basket?), or something else this 49% knows that you don't or simply your company did a poor job in promoting such a plan. Regardless, you can't force people to "participate" if they don't want to, crazy as you think they're not to. :chuncky:





KrissyFair said:


> And that's why a lot of the responses so far have included the caveat that it's great, as long as you can divest regularly and rather quickly - and as long as you then do so - rather than just putting a blanket of 'Ridiculous!' over people who don't participate.


At the risk of offending people, which isn't my intent ... I still say it's ridiculous. I know quite a few people at work that haven't joined. Typically they are the type of person that believes a 6% reduction in their regular paycheque will be too much of a hardship. Meanwhile, they have no problem buying expensive new cars, throwing money at casinos, taking on huge mortgages, etc.

In reality, with my company, they see a 6% reduction in the paycheque, but they have relatively easy access to the matching 3% for emergencies. If your mortgage payment is the reason you can't handle 6% less in your paycheque, then I would again say 'ridiculous'. It just means they've overextended themselves. As you can see, I have no sympathy for those with such poor money management that they can't take advantage of such a generous savings plan.

It comes down to irresponsibility to take responsibility for their future.


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## Eclectic12 (Oct 20, 2010)

KrissyFair said:


> ... There is significant risk to concentrating your savings for tomorrow within the entity that provides your livelihood today.


This is something to be aware of and have plans in place to avoid.

At the same time, just because one chooses to participate in an ESPP does not mean that one is automatically over-concentrating one's savings.


Cheers


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## Electric (Jul 19, 2013)

My company gives me 20% of my shares for free when I buy stock amounting to at most 20% of my gross. It amounts to a 4% bonus, pretax. I can sell the shares I buy for myself the next day, but I have to pay $35 per transaction and since I am paid 26 times per year that would add up. I wish I could write that I remembered to sell twice a year, but I forget and now I have an overconcentration in it that I really have to do something about soon.

My plan going forward is to sell every 3 months and put the money into an index fund. In theory my company's stock has a lot of upside because of a product we are just starting to bring to market in which we have billions in R&D investment, but the volatility is killing me - the stock has seen prices between $3.99 and $5.30 in the past 8 months alone. 

I know a guy who (says he) has 100 000 shares in the company we work for, which must comprise the vast majority of his holdings. I think he is an idiot to have his whole financial wellbeing tied up in one company, and I say this as a former Nortel employee. I'd expect there are a lot of RIM employees who are learning the lesson I did.


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## gibor365 (Apr 1, 2011)

We have similar problem....if it's a problem?! My wife buying CIBC shares every months with 50% discount.... more correct to say that bank buys for her same amount of shares that she buys.... also starting end of the year her shares from other program will become vested.... so we are really have to much exposure to CIBC stock.... and I don't really know what to do ....to sell or not.... on one hand it can be dangerous, on other hand CM still have pretty reasonable P/E, payout and nice dividends....also CM is not Nortel and RIM ....
What would you do?


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## jcgd (Oct 30, 2011)

I have a similar problem, about 30% of my net worth is in my company stock, not a huge dollar value though. It's also volatile but I try to ignore it. I've been trying to figure out the long term benefits of the discount on purchases and dividend reinvestment.

I get 100% match of what I buy (up to 5% of salary)
I get a 5% discount on all stock.
Dividends are reinvested at a 5% discount as will. 

So I'm dripping everything and purchasing at 5% off. I'm not sure if I should cash out or leave it alone. The stock has been on an upswing after floundering badly for the last two years. My company is cyclical.


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## Janus (Oct 23, 2013)

gibor said:


> We have similar problem....if it's a problem?! My wife buying CIBC shares every months with 50% discount.... more correct to say that bank buys for her same amount of shares that she buys.... also starting end of the year her shares from other program will become vested.... so we are really have to much exposure to CIBC stock.... and I don't really know what to do ....to sell or not.... on one hand it can be dangerous, on other hand CM still have pretty reasonable P/E, payout and nice dividends....also CM is not Nortel and RIM ....
> What would you do?


If you can't sell them while employed at the company, just be aware of the risks and position the rest of your portfolio accordingly. No point buying any Canadian banks if you have CIBC... they're all exposed to more or less the same risks from a macro standpoint.

I wonder at what point does it make sense to stop buying company stock (even if it's matched)? Certainly there has to be a limit.


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## gibor365 (Apr 1, 2011)

Janus said:


> If you can't sell them while employed at the company, just be aware of the risks and position the rest of your portfolio accordingly. No point buying any Canadian banks if you have CIBC... they're all exposed to more or less the same risks from a macro standpoint.
> 
> I wonder at what point does it make sense to stop buying company stock (even if it's matched)? Certainly there has to be a limit.


The point that I bought majority of other bank stocks even before my wife started to get CIBC shares....I think we can sell vested shares that will be available in December...the questioln is what do with this cash....what to buy instead?


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## Janus (Oct 23, 2013)

gibor said:


> The point that I bought majority of other bank stocks even before my wife started to get CIBC shares....I think we can sell vested shares that will be available in December...the questioln is what do with this cash....what to buy instead?


I don't have the answer, but as long as it's *not* a Canadian bank you'll probably be making the right decision. Maybe a S&P 500 fund/etf for the time being while you figure it out.


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