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10/06/2015

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People instinctively press the "easy" button first. They are conditioned to avoid "hard," even thought almost nothing of value ever comes easily. Most everything precious in our lives came from doing the hard thing. (Think I have another Brennan's Law, once I distill that further.)

Good analogy about POTUS elections, too, Dan, because folks still prefer to vote by gut feel and emotionally triggered sound bites than according to rigorous reviews of the practical sense of political platform promises. Same way most people (especially executives, which is another Brennan's Law) resist choices that may reveal their shameful ignorance. "Complicated? Naw, I hate that... give me the Cliff Notes version of life." Too bad, because that misses all the richness and value inherent in the bewildering difficult complexity of reality.

ESPPs are not a bad idea if you are willing and able to invest in the very considerable education and communication efforts necessary to get employees to understand them. And don't for a moment underestimate what a considerable challenge that is. As George Carlin said, think about how stupid the average person is, and then remember that half the population is even stupider.

You also need enough stock available to have an acceptable run rate when you do repeated grants. Because 95+% of ESPP stock will be cashed in the moment it vests.

But IMHO, when you get below the Executive/Sr Director level, all forms of equity compensation are just a Rube Goldberg machine to deliver profit sharing.

Jim,
I guess the real difference between the POOTUS elections and some of the more complex types of compensation is that political professionals ALL vote. Compensation professionals are often just as stumped by these plans as their employees.

Tony,

I have found it fairly easy to communicate ESPPs in way that employee value them. It does require some effort, but not so much that companies can't make it happen.

Your statistic of 90-95% of ESPP shares will be cashed in at purchase has been thrown around for years, but the data does not support it. Far more people hold on to ESPP shares after purchase than ISO shares after exercise. The only time we see a stampede to sell is when the stock price has been dropping quickly in the run up to the purchase date. The following is quoted from a blog article from the NASPP on their 2014 Stock Plan Administration Survey (with Deloitte).

"Only 11% of responding companies report that the majority of participants sell shares immediately, and only 8% of respondents report that participants sell, on average, within the first 6 months after purchase. That means 81% of respondents find that, on average, participants hold their ESPP shares at least 6 months, and 67% of respondents find that, on average, participants are actually holding a year or more. "

Dan - thank you, I stand corrected.

I should instead have said that 90-95% of ESPP participants would be well advised to sell their shares at purchase as a prudent exercise in personal financial diversification.

Thanks Tony,

I am not a financial advisor so I cannot provide direct advice on whether employee should or shouldn't hold or sell. I have seen people win and lose by doing both, It varies based on the facts and circumstances of the individual and the underlying stock.

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