ESOP Plans worth it?

[jteezie]

Hello,

I've got a question on how Employee Stock Option Plans prices work and if it's worth it. The way it works at my company, I contribute xx% of my income up to a max amount over a 6 month period. At the end of 6 months, I get options at 85% of the market price (I'm not sure what date/price they pin it to). This seems great, a 15% discount... but on second thought, I began to wonder about the opportunity cost and other factors.

Mainly, I am thinking of this example:
I put away xx% of my money each paycheck. Is it earning 0% return? What could it have done instead?
Perhaps I could have bought the company stock in the market. This year so far, my company stock has gone up 30%. If I had bought the stock, would I have earned more?

Does anyone know how how the options stike price is calculated or does it depend on the company?

Thanks

[97guns]

i worked for home depot for 3 years during the dot com run up, going through 3 splits, and made a large portion of my wealth through the stock purchase plan. its a no brainer to max it out for a guaranteed 15% gain. their plan was similar to yours but the buy price would either be the price at the opening of the plan or closing what ever price was better. when i left HD after 3 years i had 1000 shares and sold at $80 a pop, if i were still with them i would probably have over 3000 shares but the stock is around $30 now..

[YLTL_Dan]

My former employer offered a 15% discount on an ESPP (employee stock purchase plan). The first year I thought I'd be able to out earn the 15% when considering the 6 month timeframe of the money sitting there. However, I was wrong for two periods in a row. After that, I took advantage of the ESPP and profited greatly. However, I had a lot of faith in my company which had strong financials and strong growth.

Now I work for a new company. It's definitely not growing fast and their ESPP is only 5% discount. Honestly, I wouldn't even contribute to this ESPP if they gave me the 15% discount because the likelihood of stock price growth is very low.

For me, it depends on the underlying financial factors of the company.

[jteezie]

Thanks for sharing the experiences.

Dan, how did you calculate that the ESOP outperformed personal investing? Naturally 15% over 6 months is pretty good and is really hard to beat, but in my case the company is up more than 15% YTD.

[YLTL_Dan]

Thanks for sharing the experiences.

Dan, how did you calculate that the ESOP outperformed personal investing? Naturally 15% over 6 months is pretty good and is really hard to beat, but in my case the company is up more than 15% YTD.

Two reasons.

1. I didn't invest 10% of my paycheck each month when I wasn't signed up for the ESPP! It's easy to find excuses...

2. Fort the amount I did invest monthly, it was pretty clear that it didn't return 15% even though I dollar-cost-averaged. I basically just did back of the napkin math on it.