Introducing a Powerful Financial Benefit: Cashless Participation™

Carver Edison

Employee stock purchase plans (ESPPs) are a financial benefit that allows employees of public companies to purchase stock usually at a 15% discount. The temporary gain provided by the discount alone is equivalent to a nearly 4% inflation-adjusted annual raise for employees[1]. Some companies even include features in their plans that have allowed employees to buy stock at discounts as high as 80%. ESPPs have been offered to employees of leading companies since 1964—fourteen years before the creation of 401k plans—and are currently offered to more than 25 million employees at more than 1,300 companies.

Despite the widespread availability of these plans, only an average of three out of every 10 employees participate[2], resulting in an enormous lost opportunity for employees and companies alike. The disparity exists because participation in ESPPs is highly correlated to income, with lower earning employees struggling to participate. As the cost of living continues to rise, real wage growth for rank and file employees remains flat—forcing many to miss out on the compensation gains that their higher earning colleagues enjoy[3].  America’s working class faces growing headwinds when it comes to participating in their company’s stock plan, creating yet another barrier to financial security.

Now technological innovation has made it possible for companies to increase their stock plan participation rates dramatically. Carver Edison, a New York financial technology company recently received a patent[4] on its flagship technology, Cashless Participation™.  

Cashless Participation is an enhancement to stock plans that public companies can use to help employees and address wealth inequality challenges within the workplace. Cashless Participation is supported by E*TRADE’s Equity Edge Online® platform—which is the stock plan administration platform of choice for more than 500 public companies.

Increased ESPP participation provides opportunity for the plan sponsor as well. The capital contributed to the plan is considered paid-in capital. Paid-in capital flows directly to the benefit of shareholders and is not taxed. This unencumbered infusion of cash is available for reinvestment and puts more stock in the hands of employees, who, of course, now have an even greater interest in seeing the company grow. A recent study[5] conducted by Carver Edison found companies that offer ESPPs generate 40% more return for every dollar of equity on a company’s balance sheet relative to non-ESPP peers. So, as plan participation rises, shareholders in many cases will see a positive return on capital net of dilution for all shares offered under an ESPP.

When compared to other types of equity compensation vehicles, particularly restricted stock units and stock options, ESPPs deliver the same value in a far more efficient and shareholder friendly manner.
By adding Cashless Participation to a stock plan, companies and their employees can both enjoy the benefits of capital appreciation. It’s an alignment that has far reaching value: as noted in a recent study by Deloitte, “nearly 69 percent of respondents identified both better aligning the interests of its employees with those of its shareholders and increasing its ability to attract, recruit, and retain talent as their primary reason for offering an ESPP.”

Clearly, there’s no better time than right now for companies to use Cashless Participation to help their employees, shareholders, and balance sheets.

[1] Carver Edison Research

[2] NASPP 2017 Stock Plan Survey Study

[3] Pew Research, 2018

[4] Cashless Participation: U.S. Patent No: 10,445,833

[5] Carver Edison 2019 Stock Plan Performance Study

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