Hacker News Reader

The actual return on an ESPP is actually way better than the discount too. You get that discount, even for the money you contributed most recently. A 15% discount is actually a 17% return (1/.85), and you get that return on money you contributes 6 months ago and also the money contributed at every point up to the last pay check included. So if that last one was 2 weeks before the purchase, you get ~17% in 2 weeks.

Overall, it works out to a 90% annual return even if the stock stays steady or goes down. If it goes up, all the better.

Unfortunately, its not like you can "keep money" in an ESPP and actually earn that 90% over a longer period of time, but it's a great deal for short term illiquidity.

Echoing your thoughts and expanding on them.

The multi-day period is usually "1" trading day.

You get shares on a Monday, you can sell them next day on the Tuesday.

You get shares on a Friday, you can sell them next trading day on the Monday.

You get shares on a Friday before a Monday public Holiday, you can sell them next trading day on the Tuesday.

Of course there could be exceptions, but that's how it generally works, and basically locks you in from the time of allotment till the time the market opens. So the risk you have is of calamitous events happening during that time - Black Monday or something like that, but otherwise it would be rare for markets (company stock) to fall 15% and the entire ESPP allocation to be a net loss.

Yeah basically it's 15% worse case if your company stock is on a consistent downward or sideways trajectory. And 15%+ is the stock is generally rising.

There is always a small black-swan chance I guess. In all the places I've worked, the shares are purchased at the close of the trading day and available to sell by the next morning.

Yeah, and black swan is going to happen only once in a while if you do this for five years, maybe once you loose more than 15%, but other times you'll make money

> [1] e.g. because stock sales/purchases are still inexplicably not instantaneous it's conceivable something terrible could happen in the multiday period between purchasing your shares at a discount, and being able to sell them.

I recall participating in an ESPP where each time it vested (each 6 months) ended up being in a trading black out window, where we had to wait until Earnings Release + 3 days before being able to dump the stock. Lost that 15% gain just about every time.

That's relatively rare in tech, but some companies are very touchy about their trading windows. Usually smaller companies, lower floats, lawyers trying to manage insider trading risks, etc..

For larger companies, it's almost always -- ESPP purchase happens, you can sell it immediately.

15% discount is by no means the only common ESPP benefit. The company I work for doesn't offer any discount at all, the only benefit is buying at the minimum price over the purchase period.

Also, the value has to be compared to other uses of your money - with an ESPP you're essentially lending money to your company for some time, and to know if it's worth it for you you need to compare to other uses of that money. It's indeed hard to beat a minimum 15% discount (17% return on investment as someone else explained), but not impossible. And with ESPP plans that don't offer any guaranteed discount, if the stock is going down, you'll be better off even just depositing the money.

I worked for a company that offered ESPP decades ago. The stock had an odd habit of dipping in the middle 3 months of the period with price peaks at either end. While continuing to steadily decline YoY. The company went bankrupt about three years after I finally left. There were very few employees who made any money off of the ESPP shares.

First off, it’s not always 15%. My current employer only gives a 5% discount. Second, the “look back” feature where you get the best of the starting and ending prices is also far from universal. My current employer also just gives you the closing price, reduced by the 5% discount.

So there are ESPP programs that aren’t such a slam dunk and actually just slightly edge out current money market rates. Add to this that they also cap the amount you can put into it fairly low and it looks even more underwhelming. Will you take a 5% bump on 6% of your income? Well, sure, I’m not going to turn it down but I’m also not throwing a party over it.