Employee Stock Purchase Plan

An employee stock purchase plan is an employer-sponsored incentive plan that allows employees to purchase company stock.  Under such a plan, the employer offers its employees the option to purchase company stock at the end of an “offering period,” which typically ranges between 3 months and 27 months.

When an employee exercises such an option, the employer typically withholds the cost of purchasing the stock from the employee’s pay in installments during the offering period.  The employer holds this money in an account for the employee during the offering period.  At the end of the offering period, the employee uses the money withheld to purchase company stock at the specified purchase price.  Most employers offer the stock at discounts below fair market value.

Note that employee stock purchase plans should not be confused with employee stock ownership plans.  An employee stock ownership plan is a type of defined contribution plan to which the employer contributes shares of company stock.