What is an ESPP?
An Employee Stock Purchase Plan (ESPP) is a tax-efficient means by which employees of a corporation can periodically purchase the corporation's stock through automatic deductions from their paychecks – typically as a percentage of compensation or a whole dollar amount, dependent on the plan. Contributions are accumulated during a specified period (offering period), and the company uses the accumulated funds to purchase shares on the participating employee's behalf on pre-determined purchase dates. Under most ESPPs, the purchase price is a discounted price. Some plans include a "look-back" feature, which compares the share price at the beginning and end of the offering period and uses the lower price to determine the purchase price. The purpose of an ESPP is to encourage broad-based employee ownership of employer stock.