| For some people, this subject conjures images of | | | | profit of 17.6% (based on the 15% purchase |
| the devils in management at Enron, WorldCom | | | | discount) no matter the how the stock performs. |
| and other bankrupt former high flyers. | | | | Let's say you start putting money into your ESPP |
| Mesmerized by the sweet profit projections | | | | at the beginning of the offering period when the |
| coming from their corporate chieftains, all too | | | | price of your company's stock is 20, but at the |
| many employees of these firms put all of their | | | | end of the offering period the price is down to 15. |
| retirement nest egg in company stock. When the | | | | In this case, you can buy the stock for 15 less |
| company was riding high, they were wealthy on | | | | the typical 15% discount. |
| paper. When the company and stock collapsed, | | | | That's when the selling decision becomes critical. |
| they were devastated. | | | | Many times you are able to sell as soon as the |
| Of course, everyone now knows that it is a | | | | offering period ends, and you can immediately |
| mistake to place all your chips in your company's | | | | pocket that 17.6% profit. |
| stock. | | | | If you hang onto those shares until the next |
| It can be an even bigger mistake to leave your | | | | selling period, you're taking on the market risk |
| money there for an extended period of time. | | | | that your shares might decline in value. Of course, |
| That's where the Enron and WorldCom | | | | the stock could take off and pad your gain. If one |
| employees took a pasting. They failed to sell | | | | sales period is July 1, for example, keeping those |
| some or all of their shares at the time the stock | | | | shares would have been a good idea this year |
| price was peaking and turning south. In most | | | | with the DOW and NASDAQ in the early stages |
| cases they had time to salvage at least a portion | | | | of a long rally. If the selling period is, say, early in |
| their nest egg; too many hesitated and lost all. | | | | 2004, you might consider an immediate sale |
| Despite the horror stories of the past, employee | | | | because the rally has gone a long way and your |
| stock purchase plans, or ESPPs, can be a good | | | | stock could be vulnerable to a sell-off. |
| deal. | | | | Most important, don't ignore the shares building up |
| You get shares at a discount, and in most cases | | | | in your account and count on the continuing |
| you can sell your shares and pocket the cash. | | | | goodwill of your company's management. That's |
| The returns will supplement your IRA, 401K or | | | | what got Enron's employee-shareholders into |
| other employer-sponsored retirement plan. You | | | | trouble. |
| just have to be careful about monitoring the | | | | Sit down with your financial adviser and decide |
| stock and picking the right buy and sell points. | | | | whether to sell or hold. Take control of your |
| Make sure to check with the human relations | | | | future! |
| department at your company for specifics on | | | | In your deliberations, you'll have to consider the |
| your plan. | | | | tax consequences. If you sell immediately, the |
| The key question to ask: When can I sell? You | | | | proceeds will be taxed as ordinary income. If you |
| want as much flexibility as possible to avoid an | | | | hold a year or longer, the proceeds will be taxed |
| Enron-style fiasco. Some companies allow you to | | | | at the lower capital gains rate. There are other |
| sell only once a year, and some allow it twice a | | | | tax considerations; see your financial adviser |
| year. | | | | before making your move. |
| Companies also establish "offering periods" when | | | | This is a good time to find out what is available at |
| employees can purchase stock, often at a | | | | your company. ESPPs are usually available to all |
| discount of 15%. In about 80% of the plans, the | | | | employees, unlike stock options that tend to be |
| purchase price is determined on the first or last | | | | handed out to upper management. Handling |
| day of the offering period, whichever is lower. | | | | options is another story entirely. |
| This is a great deal because you have a built-in | | | | |