A stock purchase plan is a type of employee benefit which offers employees the opportunity to buy company shares on an employee stock purchase plan at discounted rates. Since it’s good for both companies and employees, ESPPs are used widely throughout organizations in various industries. At Salesforce, they encourage our employees to participate in this program because it allows them to invest in the company and has a positive impact on their overall compensation, as well as their morale. In this article, we’ll take a more in-depth look at the ESPP, what types of shares are available, who is eligible to buy them, how to get started, some things to consider before purchasing shares, and other useful information that will help you make an informed decision.
Salesforce is the enterprise cloud computing company that empowers companies to connect with their customers in a whole new way. From innovative CRM to predictive analytics and eCommerce services, Salesforce has industry-specific technology that helps businesses in every industry shape the future. Salesforce’s mission is to help its customers change the world for a better place. They want you to look forward to coming to work each day, as well as feel good about what you do. Thus, Salesforce offers its employees an enjoyable work environment and great developmental opportunities, as well as competitive salaries.
History of Salesforce
Salesforce started out in 1999 as a company focused on delivering customer service via the Internet. Marc Benioff, Dave Moellenhoff, and Frank Dominguez, the founders of Salesforce.com, came up with this idea. In 2004, the company had its initial public offering (IPO) and raised US$110 million during this time. This success continued, and in 2021 Salesforce acquired Slack for $27.7 billion. Now, Salesforce has become the fastest-growing enterprise software company ever.
How far Salesforce has come
The journey Salesforce has made for the past 23 years is quite amazing. Salesforce was ranked No. 53 on Fortune’s 500 Best Companies to Work For in 2021. With the advancement of technology, Marc Benioff and his team of employees continue to innovate and improve the lives of Salesforce users.
Moreover, Salesforce has also been recognized for the diverse ways it helps its customers change the world for the better. In 2021, the revenue stood at US$21.25 billion, and the employee’s number was 56,600. With the positive vision of the company, Salesforce will continue to grow and improve.
Salesforce Employee stock purchase plan
To begin with, in an employee stock purchase plan, employees can purchase company shares with a discount. The Salesforce ESPP discounts will provide an additional way for the employees to own stock in the company, and the ESPP likely helps Salesforce retain its talented workers and leaders. Read on to know more about ESPP.
What is an employee stock purchase plan?
Employee stock purchase plans are employer-sponsored programs through which employees can purchase company stock at a discounted rate. Employees contribute to the plan through payroll deductions that accrue between the offer and the purchase date. At the purchase date, the corporation uses the accumulated funds of the participating employees to purchase stock in the company on their behalf.
Benefits of having an Employee stock purchase plan:
The following are four advantages of participating in your company’s employee stock purchase plan:
- Discounted buying – Both eligible and non-qualified employee stock purchase schemes include a company-set employee discount. This discount might range between 2% and 15% for eligible ESPPs. The reduced stock price for employees in non-qualified ESPPs is typically between 2% and 25%.
- Cash Options – Proper management and growth in market value can result in increased cash flow. Qualified ESSPs may contribute up to $25,000 per year, while non-qualified ESSPs often limit contributions to 10% to 30% of a person’s pay. With discounts ranging from 2% to 25%, selling your shares has the potential to dramatically improve your earnings or gains.
- Saving for retirement – If you profit from the sale of your shares, you can contribute the proceeds to a Roth IRA or a 401k retirement plan. Depending on the sort of retirement plan you have, you may have to pay taxes on the funds when they enter your account or upon withdrawal. If your employer matches your contributions, you can use your ESPP to increase your retirement savings.
- Short-term Saving – A rise in the market value of your company’s stock can result in substantial profits for shareholders. Profits from the sale of your shares can also be deposited in a savings account. Unlike when you contribute to a 401k, when you transfer earned money to a savings account, the gains are considered realized and are taxed accordingly.
How does ESPP work?
We’ll explain how Salesforce ESPP works and their actual value. So, you make $150,000 plus bonuses. Salesforce caps ESPP contributions at $21,250 (or $25,000 stock at Fair Market Value, less 15% discount). Salesforce will withhold that percentage from your compensation each pay cycle until the “offering period” ends. Salesforce has two offering dates: June 15 and December 15. On these dates, they purchase shares for you using the money withheld over the previous six months and transfer them to an account in your name.
The price you pay for the shares is the lower of two different dates, the start of the offering period or the purchase date—plus a 15% discount.
Withholding the maximum amount of $10,625 between June and December 2020 results in the reduced pricing on June 15, 2020. With the $10,625, Salesforce would buy CRM stock at a 15% discount to the June 15th price of $178.61. (70 shares of CRM). If you sell on 12/15 at the market value ($220.15), you make around $15,400. You’ve now earned over $4,700, which is taxed at your ordinary-income tax rate. Assuming you pay 32%, your take-home pay is around $3,200.
What would have happened if the stock price had actually decreased from June to December? You would still receive a discount on the reduced stock, but it would be worthless, and you would receive only the 15% discount. Consider the following scenario: suppose the stock prices were reversed: $220.15 on June 15 and $178.61 on December 15. You would still receive 70 CRM shares, but they would be worth around $12,500. Again, you would earn approximately $1,300 after paying 32 percent tax on the gain. Still, something is better than nothing.
Eligibility of ESPP
Individuals who possess more than 5% of a company’s stock are normally not eligible to participate in ESPPs. Employees who have not worked for the company for a set period of time – often one year – are frequently barred from submitting an application. All other employees typically have the option to enroll in the plan but are not required to do so. Those who are eligible for ESPP are:
- Employees who the Participating Company Group typically employs for fewer than twenty (20) hours per week; or
- Employees who the Participating Company Group normally employs for a period of no more than five (5) months in any calendar year.
Understand salesforce Employee stock purchase plan
Salesforce’s ESPP is designed to ensure that you pay the lowest possible price for employee shares.
What you need to know is as follows:
- In May or November, you can enroll in your ESPP.
- You can contribute up to 15% of your income (a maximum of $21,250 per year) to the plan.
- You will earn a minimum of a 15% discount on the current stock price.
Your ESPP can assist you in accumulating significant wealth with low risk. We propose that you contribute the maximum amount permitted as a Salesforce employee – and then sell immediately. Your objective should be to convert the discount into a small monetary incentive.
For instance, suppose you make a contribution of up to $21,250 (or $10,625 per offering period). Due to the reduction, your $21,250 will acquire shares worth at least $25,000. You can then immediately sell those shares to get a $3,750 bonus.
Benefits of salesforce ESPP
In comparison to other technology organizations, the plan is quite sound. Certain firms do not issue ESPPs at all, but their incentive packages are heavily weighted toward RSUs. Many large organizations that offer ESPP offer a 15% discount but cap it at 10% of income. The following are some of the advantages of salesforce ESPP.
- Fractional share purchasing – This is one area in which businesses are enhancing their ESPPs. Currently, Salesforce’s ESPP does not support fractional share purchases (which is a real pity for Salesforce’s current share price of $250). This means that if you save $490 to purchase CRM shares through Salesforce’s ESPP, you can only purchase one share. Unused funds will either roll over to the following purchasing period or be refunded. Many businesses do not provide fractional share purchases due to the administrative burden, but when firm stock prices rise, permitting fractional share purchases becomes increasingly attractive.
- Offering period reset – Another significant advantage of Salesforce’s ESPP is that the offering period is reset if the price at the time of purchase is less than the price at the start of the offering period. Assume Salesforce’s pricing is $250 at the start of the offering period and reduced to $200 at the end of the purchase time. This $200 price point will now serve as your new starting point, and the one-year offering period will begin at that price point. Therefore, if/when the price returns to $250, you will still be able to purchase at the $200 per share price.
How does salesforce’s employee stock purchase plan work?
Employees at Salesforce pay the lower of two prices (the offering date or the acquisition date price) and receive an additional 15% discount on shares. Employees may invest up to 15% of their income (after taxes) in stock under this plan. Here are a few more terms on how the ESPP actually works:
- Purchase period – A purchase period is when employees participating in an ESPP save money with each paycheck until the purchase period concludes. Finally, the money set aside is used to purchase company stock. The industry standard for purchasing periods is six months, and Salesforce’s ESPP adheres to this standard. Salesforce offers a six-month buying time to those who contribute to their employee stock purchase plan.
- Offering period – An offering period is the amount of time that the company will allow employees to purchase company stock. It’s normally the same amount of time as the purchase periods, but it might be longer if the company is looking to deliver a bigger advantage to its employees. Salesforce’s offering period is a full 12 months, with two purchasing periods every six months within that term.
- Lookback – A lookback ESPP is one in which the corporation applies the discount to either the price per share at the end of the purchasing period or the price per share at the start of the offering period, whichever is less expensive. This is where the ESPP truly shines. If Salesforce’s price increases only over 12 months, ESPP participants will be able to purchase at the lowest possible price from month one, and they will also receive a discount. Once we get into the examples demonstrating the real performance of Salesforce’s ESPP, we’ll see that this lookback capability significantly contributes to huge returns.
- Discounts – The primary reason to contribute to an ESPP is that employees typically receive a discount on stock purchases. Discounts in ESPPs typically range from 5% to 15%. The majority of technology companies, including Salesforce, provide the largest discount here. Salesforce’s ESPP provides a 15% discount. This may not seem significant, but the reality is that you can receive considerably more than that 15%.
- Contribution limit – The IRS caps the amount you can donate to an ESPP at $25k per year. With Salesforce’s 15% discount, the true maximum is actually $21,250.
Why choose Eqvista to manage Employee stock options?
We believe that the salesforce ESPP is a great way for you to grow your portfolio, participate in a market rally, or make a profit from the upward movement of the Salesforce stock price. Now that you have a brief overview of what an ESPP is and what to expect from it in the future, you will be able to make an informed decision about whether you should contribute to a salesforce ESPP or not. Get in touch with Eqvista to manage your stock option plan right after the Salesforce ESPP vesting schedule. We will help you execute your options plan and provide you with the best financial advice to maximize your returns. Visit now!