Running a Global ESPP: Tips for a Successful Stock Plan

An ESPP (employee stock purchase plan) is a program that allows employees to use their after-tax wages to acquire their company’s shares, usually at a discount. It normally forms part of a wider employee rewards & benefits scheme aimed at attracting new talent and retaining and motivating existing employees, and has proven to be beneficial for both employers and employees.

If you are looking to launch such a plan globally to benefit employees in multiple locations around the globe, here are some of the main considerations you need to be aware of as you work through the process of introducing and administering global ESPP.

1. Figure out what you want to achieve

First among these points is to be 100% clear at the outset on what you want to achieve with your global ESPP (e.g., encourage retention, deliver a reward). When you know what you want from your ESPP, you then know what success will ultimately look like. This, in turn, will influence the design of the plan and how it operates.

2. Know your budget

Another important early box to tick relates to budget. You need to make sure that you either a) have the budget to implement what you have in mind or b) tweak the design if your budget proves to be lower than you initially envisaged.

It would be reckless to press ahead with ambitious plans if the necessary budget is not sufficient to cover the awarding of shares, administration of the plan, and ensure ongoing legal compliance.

3. Think about your participating countries

Do you want to introduce the plan in all countries you have employees in, limit it to territories where you have a larger presence or offer it in the countries where the headcount exceeds a certain threshold (usually between 5 and 50)?

Once you have compiled a list of countries, make sure to verify if an ESPP can be offered in these countries, and identify any challenges such as payroll deductions, exchange controls and securities laws for each jurisdiction before rolling out an ESPP (read more in point 4). 

If it’s difficult or expensive to comply with the relevant law, you’ll need to balance the costs, administrative burden and benefits. Is it worthwhile to go through all the hurdles to launch an ESPP in a country where there are a few employees only?

4. Involve wider teams or explore using a global ESPP provider

To echo the previous point, early involvement of internal stakeholders can help refine your plan and help identify any roadblocks that you can’t see. These stakeholders could include the Payroll, HR, Finance, Tax and Legal departments.

• Payroll: Manage payroll deductions, the remittance of plan contributions and applicable tax withholding/reporting obligations
• Legal: Conduct a detailed analysis of the regulatory obligations and restrictions of offering the ESPP in the chosen countries.
• Tax: Outline any applicable tax treatment (for the employees and also for the company itself).
• HR: Oversee employee benefits and incorporate ESPP as part of the recruitment process.

You should expect to work closely with these teams in each region to look into local laws and regulations (e.g., local payroll tax withholding and reporting obligations, payroll deduction limitations, securities filings, foreign exchange restrictions, etc.). This will help enable you to figure out the cost, time and processes required to introduce an ESPP in the countries proposed. For example, Securities fillings (e.g. Form 7) can be costly and time-consuming if an ESPP is offered in Japan.

If you partner with an ESPP service provider, they can help you navigate the requirements specific to each jurisdiction, saving you time and helping reduce your admin burden.

5. Consider the structure of the ESPP plan

If you only launch your ESPP in the US, the plan design may be relatively straightforward. Almost 80% of companies use a qualified ESPP type in the US. This plan type is designed and operates according to Internal Revenue Section (IRS) 423 regulations, meaning it’s treated more favorably on taxation as there’s no taxable event when shares are purchased.

While it’s generally possible to offer this plan type outside the US, some of the features of an ESPP qualified plan may prove problematic in other jurisdictions. These may include 1/plan contributions being payroll deductions only and 2/equal terms to all employees participating in the same offering.

So, of companies that offer ESPP to non-US employees, about 50% offer a non-qualified plan in those countries as it offers greater design flexibility without the restraints of Section 423. Here are some of the ways you may choose to structure your plan:

• Situation 1: If you haven’t launched one already, you could consider setting up an omnibus plan (i.e. a stock plan offering flexibility) at the outset enabling you to offer both qualified and non-qualified plans, both inside and outside the US, using the single share reserve.
• Situation 2: If a qualified plan is already in place but not as in situation 1, you could design a “separate offering” for particular subsidiaries to accommodate specific local legal requirements.
• Situation 3: If a qualified plan is already in place but not as in situation 1, you could also design a “separate plan”, meaning you’ll need separate approval for the new plan (due to stock exchange rules), which will result in a separate share pool and prospectus. That could also mean higher administrative costs and burdens.

6. Seek plan approval

A qualified ESPP plan needs to be approved by the stockholders of the granting corporation within 12 months before or after the date such a plan is adopted according to I.R.C. § 423(b)(2).

This process can be done via an annual general meeting (AGM), meaning you need to know when it is so you can allow enough time to secure shareholder approval before the launch. To streamline this process, engage with them in advance to discuss plan specifics, the rationale for looking to launch an ESPP and seek their buy-in.

7. Schedule your launch plan

You don’t have to roll out the plan to all countries at the one time. Instead, you could launch it phase by phase as some countries might take more time to go through filing or other compliance issues.

Another benefit of having a launch schedule is that you can integrate employee communications into it. For instance, if you plan to launch it in Spain in the coming fall, you should at least start to plan your communications in the summer. (Read more in point 9)

8. Explore how to administer your global plan

ESPP administration is the process of implementing, tracking, managing and reporting an employee share purchase plan.

It involves a series of activities, including enrolling employees in the plan, tracking and reporting changes in ownership, managing participants’ contributions and purchases, communicating with stakeholders and the board of directors, updating policies/procedures, and staying compliant in each region your employees are based in.

So, globalizing ESPP is not a ‘’DIY’’ project where you can easily manage it on a spreadsheet, especially if you have a large number of employees. Give active consideration to what technologies and specialist service providers you will use to do so on your behalf.

9. Plan an effective communications

Even if you have come up with the best share plan in the world, if you do not sell it effectively to your target audience – your eligible employees – then it is unlikely to be a success. Against this backdrop, developing an effective communications strategy is vitally important.

The best communications strategy for you will be one that is designed with your employees in mind, one that will give them the key information such as what ESPP is, how it works, and tax implications.

Any modern communications strategy will likely be multimedia in nature. There may be a blend or selection of online presentations, town hall meetings, email communications,  location postings, and talks on factory floors. Again, it depends upon what is most likely to reach your employees. That is the key point.

10. Other things..

This list represents merely a selection of the points you will need to investigate if you are considering launching a global ESPP. Other issues like currency conversion (e.g. what exchange rate to be used on the purchase date, for converting contributions and refunds) and translations (e.g. ESPP documentation for each country) should also be carefully discussed.

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At Global Shares, a J.P. Morgan company, we’ve helped companies launch their global ESPPs to their global workforce with over 24,000 personnel (including active and terminated employees) in more than 10 countries including challenging jurisdictions¹.

Reach out to us if you’ve any questions about rolling your ESPP to other countries.

1: As of August 2022

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