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