An Employee Stock Purchase Plan (ESPP) is a company-sponsored benefit program that allows employees to buy shares of their employer's stock at a discounted price, typically 10-15% below market value. Contributions are made through payroll deductions over a set offering period.
For example, if a company offers a 15% discount and its stock is trading at $100, employees can purchase shares for $85 each. This immediate discount provides a built-in return on investment.
ESPPs are a valuable employee benefit that encourages company ownership and loyalty. However, employees should be mindful of concentration risk — holding too much of their net worth in a single company's stock can be risky if the company underperforms.