ESPP: What is it?

Transcript of the video:

Light music plays throughout.

Onscreen text:
Employee Stock Purchase Plan:
What is it?

Narrator [off-screen]: An employee stock purchase plan, or ESPP, is an optional benefit that allows employees to set aside after-tax dollars from each paycheck to buy shares of their company's stock.

Onscreen text:
An employee stock purchase plan, or ESPP, is an optional benefit that allows employees to set aside after-tax dollars from each paycheck to buy shares of their company's stock.

An animation of a woman sitting at a desktop computer appears. She adjusts a desk lamp and sets down a coffee mug.

Narrator: And these shares are available to employees at a discounted price that's lower than what you would pay on the open market.

Onscreen text:
And these shares are available to employees at a discounted price that's lower than what you would pay on the open market.

The woman turns on the computer and views a page showing a pie chart of stock allocations. As she looks on, the price goes from $400 a share to $300.

Narrator: There are a few important terms and dates associated with ESPPs.

The desktop screen enlarges to replace the animation.

Narrator: Most companies offer a two- to four-week enrollment period. After you're enrolled, the Offering Period begins, which means your after-tax payroll deductions start accumulating.

The word "Enrollment" appears. A line emerges from "Enrollment," ending with "Offering Period begins" to represent the amount of time between the two events. A calendar rises out of "Offering Period begins."

Narrator: Your contributions build up during the Offering Period, and then shares of your company's stock are bought for you on the Purchase Date.

The line continues on past the calendar into the "Offering Period," where cash appears above it. The Offering Period ends at the Purchase Date.

Narrator: Multiple Purchase Periods fit into what is called an Offering Period, and each one ends with a Purchase Date.

The Offering Period separates into two different Purchase Periods with individual Purchase Dates.

Narrator: The Purchase Date is when the money that has been accumulating is used to purchase shares of the company stock at the discounted price.

A circle containing cash appears, which is then replaced by certificates. The text "Purchase Date: buy shares of company stock at discounted price." appears next to the certificates.

Narrator: The purchase price is the stock price at the end of the purchase period, less the discount offered. In this example, the company's stock price on the purchase date is higher than the price you bought it for. Therefore, there is an unrealized gain.

A line graph showing an upward trajectory of a company's stock price appears, representing the time between the Offering Date and the Purchase Date.

Narrator: The discount is applied to the company's stock price on whichever date the price is lower. In this example, the purchase date price is lower than what you paid for it on the offering date, so the discount is applied to the Purchase Date. Of course, be sure to check with your company for specific plan information.

The same line graph showing a company's stock price, this time with a downward trajectory for the price by the Purchase Date, appears. A blue box containing the text "Check with your company for specific plan information." appears above the graph.

Narrator: Let's take a look at a really simple example.

Onscreen text:
Let's take a look at a really simple example.

Narrator: Say you begin setting aside $300 from every paycheck on your company's Offering Date, and that the stock price on that day was $150. At the end of the Offering Period, on the Purchase Date, the stock price has gone up to $160.

The text "Offering Date" appears, and a line emerges upward to a circle containing cash. The text demonstrates that the viewer contributes $300 from each paycheck when the stock price is $150. A line graph of the company stock price increases from $150 at the Offering Date to $160 by the Purchase Date.

Narrator: Let's say your company offers a 15% discount. The lower of the two stock prices is $150 minus the 15% discount, which gives you a purchase price of $127.50.

Circles appear, visually demonstrating the narrator's explanation.

Narrator: In this case, the stock price on the purchase date, $160, is higher than the original discounted price you locked in, $127.50. This means that the $32.50 difference is the gain you earn per share.

The line graph representing the company's stock price reappears with the upward trajectory, visually demonstrating the narrator's explanation.

Narrator: This example is of course hypothetical. Be sure to check with your company for specific information.

A blue box containing the text "This example is hypothetical. Check with your company for specific information ." appears above the graph.

Narrator: Remember: Your Schwab account is your destination for viewing and managing your awards. Just log in and click on Equity Awards.

Onscreen text:
Remember: Your Schwab account is your destination for viewing and managing your awards. Just log in and click on Equity Awards.

Narrator: Still have questions? Give us a call.

Onscreen text:
Still have questions?
To talk to a Schwab Stock Plan Specialist, call 800-654-2593.
International participants, call +1-602-355-3408.

Narrator: Or, from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

Onscreen text:
Or from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

The Charles Schwab logo appears. Schwab brand music plays.

Onscreen text:
Own your tomorrow®

For illustrative purposes only. Individual situations will vary.

This information provided here is for general informational purposes only, and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, you should consult with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.

Schwab Stock Plan Services provides equity compensation plan services and other financial services to corporations and executives through Charles Schwab & Co., Inc. ("Schwab"). Schwab, a registered broker-dealer, offers brokerage and custody services to its customers.