A majority of employees across the country eligible to participate in a stock purchase plan do not take advantage of the benefit, leaving behind billions of dollars they could have pocketed.
Just last year alone, America’s working class lost out on $45 billion in unused money from employee stock purchase plans (ESPPs), according to Aaron Shapiro, who founded Carver Edison, a fintech start-up in the Soho section of New York City that aims to change how employees and employers view the benefit, hoping they will jump on board.
The company, Shapiro noted, has backing from Eli Broverman, co-founder of the largest robo-advisor, Betterment, and Jeff Cruttenden, co-founder of Acorns, an investing app.
“It’s a very powerful story for employees where they can build a meaningful amount of wealth; but also from the corporate side, there is a very real business case for companies that are always looking for ways to reinvest and continue to grow,” he said.
The companies typically offering employee stock purchase plans are in the technology, health-care and financial services sectors, Shapiro said.
As for the target employee, Shapiro said there is a lot of interest from millennials, and those nearing retirement age, who see the benefit as a way to help themselves build wealth before they retire.
Shapiro explained that such plans usually run over a six-month period. So for example, an employee signs up on January 1 and every two weeks for the next six months the amount of money goes to buying stocks at a discount, which is usually 15% for most companies. That 15% is off the lower or ending price in a six-month period.
“So quite literally you can have a company stock price on January 1 for $10 and on June 30, it’s $100, and employees get to buy stock at 15% off $10, even though the stock is worth $100.
“It’s complete arbitrage, because there is always a structurally locked-in profit of at least the value of the discount at a moment in time,” Shapiro said, adding that the stock value can go down or it can go up after the employees own the shares. But employees who participate in these plans already have a head start on the rest of the market because of the discounts provided through the plan.
Shapiro noted that there are many examples of companies that have made their employees richer. One example, he said is Roku, the developer of online media, whose stock prices “have gone through the roof” in the past couple of months. Here, he said employees are buying stocks at a 60% to 70% discount of the market price. “It’s really remarkable.”