Stock plans generate higher returns on capital

Carver Edison

We just released the preliminary results of a groundbreaking study which quantifies how companies with employee stock purchase plans (ESPPs) outperform peers that don’t offer them.

The study analyzes financial data from nearly 900 technology, healthcare and financial services companies traded on NYSE and NASDAQ and which had at least 500 employees in 2018. The 472 companies with ESPPs dramatically outperformed firms without ESPPs, in both return on equity (43%) and invested capital (24%).

Companies with ESPPs were able to produce higher returns on capital despite having considerably less leverage and EBITDA margins than their peers. Further, ESPP companies on average produced $55,270 in returns for shareholders per employee compared to $30,683 for non-ESPP companies, a staggering 44.5% difference.

We asked Amanda Benincasa, Director of Aon Equity Services, what she thought of the results. “This is a pioneering study that finally demonstrates the business case for boosting ESPP participation,” she told us.

Employee stock purchase plans are a popular financial benefit which have been offered by public companies since 1964, 14 years before the creation of 401k plans. But among eligible employees across the United States, approximately 70% do not participate in an ESPP where one is offered[i]. This lack of participation results in more than $47.5B in lost income potential every year. This chronically low participation is driven by the relatively high salary contributions needed to join the plan as well as lack of awareness and/or understanding of the plan itself.

Our technology removes the barriers to ownership

Cashless Participation enables ESPP participation for employees of public companies, and our education platform Carbon provides customized, on-demand plan education and awareness. Both help issuers increase participation, which, as our newest research, shows can unlock extraordinary value for employees and shareholders alike.

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