to qualify or not to qualify · 2019-01-23 · 2. disclaimer. the following presentation and the...

TO QUALIFY OR NOT TO QUALIFY

Presented by Computershare and Aon

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Disclaimer

The following presentation and the views expressed by the presenters are not intended to provide legal, tax, accounting, investment, or other professional advice. The information contained in this presentation is general in nature and based on authorities that are subject to change. Applicability to specific situations should be determined through consultation with your investment, legal, and tax advisors. The information contained in these materials is only current as of the date produced. The materials have not been and will not be updated to incorporate any changes since the production date.

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Introductions

Liz Stoudt, CEPDirector, Valuation ServicesAon Hewitt

Lisa SabatinoRelationship ManagerComputershare

Prepared by AonAon is part of Aon Hewitt, a business unit of Aon plc.

To Qualify or Not To QualifyComputershare and Aon

AonProprietary & Confidential

Agenda

Overview of ESPP

Plan Design

Design Prevalence

Participation Rates

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ESPP Overview

8

Pre-123R

• ESPPs with 15% discount and lookback common

• No compensation charge

FAS 123R

• Most ESPPs are compensatory• Safe harbor ESPPs have 5% discount

and no look-back

Today

• Resurgence of ESPP• Variations in design and specific

company goals for ESPP


Why ESPP?

Company perspective Encourages broad based ownership

Non-excessive

Expense efficient

Shareholder friendly

Corporate tax deduction

Employee Perspective Guaranteed appreciation at purchase

Control timing of taxable event with qualified plans

Employee motivation, loyalty, engagement

9


Plan Design Alternatives

10

Qualified Plans

• Most common in US• Common goals are to

promote broad based ownership while providing a good incentive for employees to participate

• Limits benefits and share purchases

• Preferential tax treatment for employees

• Corporate tax deduction depends on timing of sales

• Shareholder friendly

Non-Qualified Plans

• Most countries don’t have qualified plans

• Common goals are to provide additional benefits beyond a qualified plan or provide a simpler direct stock purchase program

• More flexibility on design• Taxed at purchase for

employees• Always get a corporate tax

deduction• Shareholder friendly


Computershare and Aon ESPP Research Project

Computershare and Aon partnered to analyze global ESPP design, participation rates, and employee behavior in the marketplace Covers 250 plans and participation rate data for 125 plans

Covers approximately 2.7 million eligible participants

Prevalence of design features Plan Type: Non-Qualified vs. Section 423B Qualified plans

Length of Purchase Period: Monthly, Semi-Annual, etc.

Size of Discounts and Employer Match

Look-back provisions

How plan design features drive employee behaviors Participation Rate

Contribution Level

11


Company Summary The breakdown of Computershare ESPP clients by industry and size are summarized

below:

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37%

33%

30%

Market Cap Size Breakdown

Small Cap

Mid Cap

Large Cap

13%

5%

4%

18%

13%

27%

9%

5%

2%1% 3%Industry Breakdown

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Real Estate

Telecommunication Services

Utilities


ESPP Design Summary The broad plan design details of the ESPP clients are summarized below:

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60%

40%

Plan Type

QualifiedNon-Qualified

4%

31%

15%7%

43%

Discount

0% w/ Match0% w/o Match5%10%15%

6%

37%

31%

20%

6%

Length of Purchase PeriodWeekly or Bi-Weekly

Monthly

Quarterly

Semi Annual

Annual

69%

31%

Purchase Price Type

Ending Price

Look-Back


Plan Type Qualified plans showed slightly higher participation rates than Non-Qualified plans. We find that

the specific plan designs illustrated later in this deck show greater differences in participation rates.

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60%

40%

Plan Type


20% 19%

0%

10%

20%

30%

40%

Qualified Non-Qualified

Average Participation Rate

$4,400 $3,600

$0

$2,000

$4,000

$6,000

Qualified Non-Qualified

Average Yearly Contribution


Plan Type There are more variations in prevalence by industry or company size when looking broadly at

qualified versus non-qualified plans.

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53%

33%

44%

60%

69%

63%

89%

42%

40%

67%

57%

47%

67%

56%

40%

31%

37%

11%

58%

60%

33%

43%


Consumer Staples

Energy

Financials

Health Care

Industrials


Materials

Real Estate


Utilities

Plan Type

423B Qualified Non-Qualified

69%

73%

35%

31%

27%

65%

Small Cap

Mid Cap

Large Cap

Plan Type by Market Cap

423B Qualified Non-Qualified


Discount The breakdown for discount by plan type is summarized below. There’s a significant

difference in discounts and matches between qualified and non-qualified plans.

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5%

23%

9%63%

Qualified Plans

0% w/o Match5%10%15%

11%

71%

2%4%12%

Non-Qualified Plans

0% w/ Match0% w/o Match5%10%15%


Discount The breakdown for participation rates and contributions by discount level is

summarized below:

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$1,795 $3,874 $4,110 $4,915

$3,757 $2,810 $3,554

$9,537

$5,911

$0

$2,000

$4,000

$6,000

$8,000

$10,000

0% w/ Match 0% w/o Match 5% 10% 15%



9%16%

10%

25%25%

12% 11%

31%

0%

10%

20%

30%

40%

0% w/ Match 0% w/o Match 5% 10% 15%




Length of Purchase Period The length of purchase varies significantly for qualified and non-qualified plans. Monthly plans are

most common for non-qualified plans where quarterly and semi-annual plans are most common for qualified plans.

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1%

19%

41%

31%

8%

Qualified Plans

Weekly or Bi-WeeklyMonthlyQuarterlySemi AnnualAnnual

14%

66%

16%

2% 2%

Non-Qualified Plans

Weekly or Bi-WeeklyMonthlyQuarterlySemi AnnualAnnual


Length of Purchase Period Participation rates and contribution levels generally peak at semi annual purchase periods, then

decline for longer periods. The qualified weekly or bi-weekly column only represents 2 companies.

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29%

9%

20%25%

17%3%

21% 23%

12%

0.0%

10.0%

20.0%

30.0%

40.0%

Weekly or Bi-Weekly Monthly Quarterly Semi Annual Annual



$6,903

$3,459 $4,424

$5,233 $3,277

$1,840 $3,193

$6,773

$3,532 $2,043

$0

$2,000

$4,000

$6,000

$8,000

Weekly or Bi-Weekly Monthly Quarterly Semi Annual Annual




Purchase Price Type

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Approximately 31% of all companies offer a plan with a look-back feature, while 47% of qualified plans have a look-back. Companies who offer plans with a Look-Back period see higher average contributions and participation rates

15%26%

20%10%

0%

10%

20%

30%

40%

Ending Price Look-Back



$3,862 $5,022

$3,525 $4,081

$0

$2,000

$4,000

$6,000


Average Yearly Contributions


53%47%

Qualified Plans

Ending Price

Look-Back

94%

6%

Non-Qualified Plans

Ending Price

Look-Back


Plan Design Combinations The plan design breakdowns are summarized below. There’s a significant difference

between qualified and non-qualified plan designs.

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32%

5%12%7%

21%

23%

All Plan Designs

0% w/o Match

0% w/ Match

5% Discount, No Lookback

10% Discount

15% Discount, No Lookback

15% Discount, Lookback

6%

19%

9%

29%

37%

Plan Design for Qualified Plans

0% Discount

5% Discount, NoLookback

10% Discount

15% Discount, NoLookback

15% Discount, Lookback

75%

12%

13%

Plan Design for Non-Qualified Plans

0% w/o Match

0% w/ Match

15% Discount


Plan Design Combinations Participation rates for qualified plans and non qualified plans

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9%13%

10%

19%

28%

12%

25%

35%

12%

0.0%

10.0%

20.0%

30.0%

40.0%

0% w/o Match 0% w/ Match 5% Discount,No Lookback

10% Discount 15%Discount, No

Lookback

15%Discount,Lookback




Plan Design Combinations Annual contribution levels for qualified and non-qualified plans

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$1,795

$4,048 $4,110 $4,015

$5,515

$2,810 $3,757

$0 $0

$6,588

$4,332

$0

$2,000

$4,000

$6,000

$8,000

0% w/o Match 0% w/ Match 5% Discount,No Lookback

10% Discount 15% Discount,No Lookback

15% Discount,Lookback

Average Yearly Contributions



Plan Designs

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24%

4%7% 5%

14%

29%

10%

11% 18

%

3% 6%

19%

12%

12%

3%

22% 30

%

7% 12%15

%

10%

25%

48%

20%

34%

31%

26%

14%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Qualified Participation Rate by Industry

0% Discount 5% Discount, No Lookback 10% Discount 15% Discount, No Lookback 15% Discount, Lookback


Plan Designs

25

8% 2%

36%

32%

2% 4% 12%

4%

42%

24%

17%

52%

30%

66%

40%

28%

7%

20%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Non-Qualified Participation Rate by Industry

0% w/o Match 0% w/ Match 15% Discount


Summary

ESPPs are a cost-friendly and effective way for companies to engage employees and improve share ownership amongst employees on an extensive basis

As shown in the slides above the prevalence of different plan types and design features vary depending on a company’s size and industry

Blending different design features can increase participation without a large increase in expense

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Contact Information

Liz Stoudt, ASA, CEP

Associate Partner

Aon

(908) 380-0144

[email protected]

Lisa Sabatino

Relationship Manager

Computershare

(732) 417-2938

[email protected]

mailto:[email protected]

mailto:[email protected]

APPENDIX

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US vs. Non-US Employee Participation

We have also analyzed participation for both US and Non-US participants from 121 unique companies. US employees tend to participate at a higher rate than Non-US employees as they will have access to 423B Qualified plans and

easier administration, which should lead to higher participation

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21%

16%

0%

10%

20%

30%

40%

US Participation Non-US Participation

US vs. Non-US Participation


Purchase Price Type by Industry

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• Technology Companies tend to offer Look-Backs at a higher rate than other industries, while small cap companies have the highest rates of look-backs by company size.

77%

83%

78%

63%

59%

77%

37%

83%

60%

67%

100%

23%

17%

22%

38%

41%

23%

63%

17%

40%

33%


Consumer Staples

Energy

Financials

Health Care

Industrials


Materials

Real Estate


Utilities

Purchase Price Type


58%

65%

88%

42%

35%

12%

Small Cap

Mid Cap

Large Cap

Look-Back by Market Cap



Discounts Health Care, Real Estate and Information Technology company have the highest

prevalence of 15% discounts.

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43%

58%

56%

28%

10%

33%

16%

42%

20%

67%

14%

3%

3%

7%

7%

8%

14%

3%

17%

11%

23%

10%

20%

16%

29%

10%

8%

22%

14%

7%

8%

40%

17%

11%

48%

59%

33%

68%

42%

80%

33%

43%


Consumer Staples

Energy

Financials

Health Care

Industrials


Materials

Real Estate


Utilities

Discount

0% w/o Match 0% w/ Match 5% 10% 15%


Discounts Small cap companies have the highest prevalence of 15% discounts, while large cap

companies have the highest prevalence of direct stock purchase plans.

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27%

23%

46%

5%

3%6%

8%

20%

16%

4%

11%

6%

56%

43%

26%

Small Cap

Mid Cap

Large Cap

Discount by Market Cap

0% w/o Match 0% w/ Match 5% 10% 15%

7%12% 13%

6%

36%42%

21%

11%18%

2% 7%16%

28%22%

29%

0%5%

10%15%20%25%30%35%40%45%

Small Cap Mid Cap Large Cap

Average Participation Rate vs. Discount by Market Cap

0% w/o Match 0% w/ Match 5% 10% 15%


Plan Designs

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24%

2%11% 9%

18%

2% 6%

18%16% 17%25%

33%

24%

0%

10%

20%

30%

40%


Average Participation Rate by Qualified Plan Design and Market Cap

0% Discount 5% Discount, No Lookback 10% Discount15% Discount, No Lookback 15% Discount, Lookback

3%

32%

13%6%

36%42%

7%

27%

37%

0%

10%

20%

30%

40%


Average Participation Rate by Non-Qualified Plan Design and Market Cap

0% w/o Match 0% w/ Match 15% Discount

to qualify or not to qualify · 2019-01-23 · 2. disclaimer. the following presentation and the...

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