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