Sample Employee Stock Purchase Plan ESPP

Sample_Documents

DISCLAIMER: This is a sample template provided for informational purposes only. It does not constitute legal, tax, or financial advice. Organizations should consult their own legal and tax advisors and tailor this document to reflect their specific business needs, geographies, and applicable laws.

Document Header

Document Title	Employee Stock Purchase Plan (ESPP) Policy and Administration Guide
Company	<Company Name>
Category	Variable Compensation
Version	<Version Number>
Effective Date	<Effective Date: Date>
Last Review Date	<Last Review Date: Date>
Next Scheduled Review	<Next Review Date: Date> (e.g., annually each <Month>)
Policy Owner	<Total Rewards Leader Name>, Total Rewards
Plan Sponsor	<Plan Sponsor Committee Name> (e.g., Compensation Committee)
Approvers	<Approver 1: Title>; <Approver 2: Title>; Board of Directors as required
Document Status	Draft / Approved / Archived
Supersedes	<Prior Version and Date>

Purpose and Objectives

• Define the design, governance, and administration standards for the <Company Name> Employee Stock Purchase Plan (ESPP).
• Provide Total Rewards and cross-functional partners with a clear reference for plan eligibility, operation, compliance, and communications.
• Ensure the ESPP aligns with <Company Name>’s compensation philosophy, supports employee ownership, and complies with applicable laws, including Section 423 of the U.S. Internal Revenue Code where applicable.
• Establish consistent processes for offering periods, payroll deductions, purchases, and reporting across all participating geographies.

Scope and Applicability

In Scope

• All ESPP program elements offered by <Company Name>, including Section 423 and non-423 sub-plans.
• Employees of <Company Name> and participating subsidiaries designated by the Plan Sponsor.
• Global program administration, including country-specific appendices for <Country>.
• Vendor integration, payroll processes, accounting and tax, controls, and compliance.

Out of Scope

• Equity awards other than ESPP (e.g., RSUs, stock options).
• Executive compensation policies not directly related to ESPP participation limits.
• Brokerage services beyond plan-level requirements managed by <Vendor Name>.
• Individual tax advice to employees.

Plan Overview

Plan Type and Structure

• The ESPP is intended to qualify as a Section 423 plan for eligible U.S. employees and may include a non-423 sub-plan for employees in <Country> and other jurisdictions where a tax-qualified plan is not feasible.
• Shares purchased under the plan will be shares of <Company Name> common stock traded on <Exchange Name>.

Key Plan Parameters

Parameter	Standard	Notes
Plan Type	<Section 423 Qualified> with a non-423 sub-plan	Jurisdiction-specific rules may vary
Discount	<Percentage> (e.g., 15%)	Applied to lower of start or end FMV if lookback applies
Lookback Feature	<Yes/No> (e.g., Yes)	Compares FMV at offering start and purchase date
Offering Length	<Months> (e.g., 6 or 24 months)	May contain multiple purchase periods
Purchase Frequency	<Frequency> (e.g., semi-annual or quarterly)	Must align with payroll timing
Contribution Rate	<Percentage> of eligible compensation (e.g., 1%–15%)	Minimum increment <0.5% or 1%>
Eligible Compensation	<Base pay only / Base plus bonus / All cash compensation>	Overtime/commissions included or excluded per local rules
Annual Limit	$25,000 IRS limit (Section 423 valuation method), plus company limits	Non-423 may have currency-equivalent thresholds
Per-Offering Share Cap	<Number of shares>	Optional risk-control measure
Plan Share Reserve	<Number of shares>	Approved by shareholders on <Date>
Holding Period	<Months> (e.g., 6 months post-purchase) if applicable	Optional plan feature; separate from tax holding periods
Fractional Shares	<Allowed/Not allowed> (e.g., Not allowed)	Excess contributions refunded in cash
Enrollment Window	<Start Date> to <End Date> before each offering	Late enrollments not permitted
Vendor	<Vendor Name>	Brokerage and recordkeeping

Eligibility and Participation

Eligibility Rules

• Employees of <Company Name> and participating subsidiaries are eligible unless excluded under plan terms or local law.
• Typical exclusions may include:
  • Employees with less than <Months> of service at offering start.
  • Employees working fewer than <Hours> hours per week on average.
  • Interns, contractors, and temporary workers not on <Company Name> payroll.
  • Employees owning 5% or more of voting stock, as required by Section 423.
• Eligibility is determined as of the offering start date unless otherwise specified by local rules.

Geographic Variations

• The non-423 sub-plan may modify eligibility, contribution limits, and tax withholding to comply with local law in <Country>.
• Country-specific participation restrictions will be documented in a country appendix approved by Legal and the Plan Sponsor.

Enrollment and Changes

• Employees enroll via <Vendor Name>’s platform during the announced enrollment window.
• Contribution elections are made as a percentage of eligible compensation, subject to plan limits.
• Changes to contribution rates:
  • May be allowed at any time or limited to specific windows, depending on plan design.
  • Increases may be subject to a blackout period prior to purchase dates.
  • Reductions or withdrawals are generally allowed per plan terms.
• If an employee transfers between entities with different ESPP eligibility, participation continues or adjusts per plan and local sub-plan rules.

Withdrawals and Suspensions

• Participants may withdraw from an offering per plan provisions by requesting a withdrawal through <Vendor Name> before the cutoff date.
• Upon withdrawal, accumulated contributions are refunded via payroll where required.
• Re-enrollment may be restricted until the next offering, and the lookback may reset.

Leaves of Absence and Job Changes

• Paid leave: Payroll deductions may continue if compensation is paid and local law permits.
• Unpaid leave: Participation typically suspends; amounts held may be refunded depending on plan rules and local law.
• Internal transfers: If transferring to a non-participating entity or country, participation may end at transfer; refunds or purchases follow plan terms.

Termination and Retirement

• Employment termination prior to the purchase date generally results in a refund of accumulated contributions.
• Retirement: If defined by <Company Name> policy and allowed by plan, purchases may proceed if termination occurs after payroll cutoff. This may vary by jurisdiction.
• Death or disability: Follow plan and local sub-plan rules for treatment, refunds, and beneficiary processes.

Purchase Mechanics

Contribution Rates and Limits

• Contribution rate is a fixed percentage of eligible compensation, subject to minimum and maximum rates defined in the Key Plan Parameters.
• Contributions are made via after-tax payroll deductions.
• Section 423 annual limit: Purchases may not exceed $25,000 in value (as determined by FMV at offering start) per calendar year across all offerings.
• Additional company limits may apply, such as per-offering share caps or per-pay-period maximums of <Amount>.

Purchase Price and Lookback Calculation

• Purchase price is the lower of:
  • FMV on the offering start date, or
  • FMV on the purchase date,
• Less the plan discount of <Percentage>.
• If no lookback applies, the discount of <Percentage> is applied to the FMV on the purchase date only.
• FMV is defined as the closing price on <Exchange Name> or another objective measure specified by <Company Name> on the relevant date.

Share Delivery and Fractional Shares

• Shares are delivered to participant brokerage accounts with <Vendor Name> as soon as administratively feasible after the purchase date.
• Fractional shares are <Allowed/Not allowed>:
  • If not allowed, cash proceeds from any fractional share remainder are refunded via payroll.
  • If allowed, fractional shares are credited to the participant’s account.

Example Calculations

• Example with lookback and 15% discount:
  • Offering start FMV: <Amount> (e.g., $20.00)
  • Purchase date FMV: <Amount> (e.g., $30.00)
  • Discount: 15%
  • Purchase price: Lower of $20.00 and $30.00 = $20.00; $20.00 x 85% = $17.00 per share
  • If the participant contributed <Amount> (e.g., $1,700), shares purchased: $1,700 / $17.00 = 100 shares
• Example without lookback and 10% discount:
  • Purchase date FMV: <Amount> (e.g., $25.00)
  • Discount: 10%
  • Purchase price: $25.00 x 90% = $22.50 per share
  • If the participant contributed <Amount> (e.g., $900), shares purchased: $900 / $22.50 = 40 shares

Compliance and Legal Considerations

Section 423 and Non-423 Sub-Plan

• The Section 423 component is intended to meet statutory requirements, including:
  • Employee-shareholder 5% ownership limitation.
  • Broad-based eligibility with limited exclusions.
  • $25,000 annual purchase limit based on offering-start FMV.
  • Identical rights and privileges within each offering.
• The non-423 sub-plan provides flexibility to comply with non-U.S. laws in <Country>:
  • May allow employer tax withholding at purchase.
  • May adjust eligibility, contribution limits, or purchase mechanics to reflect local requirements.

Securities Law and Insider Trading

• Participation is subject to <Company Name>’s Insider Trading Policy and blackout restrictions.
• Employees in possession of material non-public information must comply with trading windows and pre-clearance requirements as applicable.
• Prospectus or offering documents will be provided as required under local securities laws.

Taxation Overview

• Section 423: Purchases are made with after-tax dollars; taxable events occur upon sale or disposition and may include ordinary income and capital gains based on qualifying vs. disqualifying dispositions.
• Non-423: Taxable income may arise at purchase; employer may be required to withhold applicable taxes and social charges.
• Country-specific tax summaries for <Country> will be posted on <Vendor Name>’s site and maintained by Tax and Legal. Employees should seek personal tax advice.

Data Privacy and Information Security

• Personal data processed for ESPP participation will comply with <Country> data protection laws (e.g., GDPR) and <Company Name>’s Privacy Policy.
• Data shared with <Vendor Name> is limited to necessary fields and governed by a Data Processing Agreement and cross-border transfer mechanisms where applicable.

Works Council and Labor Consultation

• In jurisdictions requiring consultation or information to works councils or unions, <Company Name> will follow local processes prior to implementation or plan changes.
• Consultation timelines will be included in the implementation plan for <Country>.

Accounting and Finance

Accounting Treatment

• For GAAP/IFRS, the ESPP discount and lookback may generate compensation expense under ASC 718/IFRS 2.
• Expense attribution period typically aligns with the offering or purchase period.
• Valuation methodology:
  • Non-dividend-protected lookback features may require option valuation models.
  • Non-423 tax withholding features may affect accounting treatment.
• Finance will document accounting assumptions and approvals for each offering.

Payroll and Tax Withholding Processes

• Payroll will deduct contributions each pay cycle based on participant elections.
• For non-423 countries where purchase-date income is taxable, payroll will:
  • Receive taxable income data from <Vendor Name>.
  • Withhold taxes and social charges as required.
  • Reconcile year-to-date taxable income with local reporting obligations.

Financial Controls and Audit

• Key controls include:
  • Reconciliation of payroll deductions to <Vendor Name> contribution records each pay period.
  • Approval of purchase orders and share allocations by authorized personnel.
  • Segregation of duties between data upload, approval, and posting of journal entries.
  • Periodic internal audits and SOX controls where applicable.

Administration and Vendor Management

Roles and Responsibilities

• Total Rewards:
  • Own plan design, policy, and communications.
  • Coordinate cross-functional governance and country-specific adaptations.
• Legal:
  • Ensure compliance with Section 423 and local laws.
  • Review prospectus and offering documents.
• Tax:
  • Maintain global tax matrix and employee tax summaries.
• Payroll:
  • Process deductions and refunds; support year-end reporting.
• Finance/Accounting:
  • Record expenses and journal entries; oversee plan reserve and share usage.
• HRIS:
  • Maintain eligibility feeds and data integrity.
• Equity Administration:
  • Manage <Vendor Name> relationship, offering setup, purchases, and reconciliations.
• Internal Audit/Compliance:
  • Review controls, address findings, monitor insider trading compliance.

Vendor Integration

• <Vendor Name> will host enrollment, record contributions, calculate purchases, and deliver shares.
• Data exchanges will occur on a scheduled cadence using secure transfer:
  • Eligibility file <Frequency> (e.g., weekly).
  • Payroll deduction file <Frequency> (e.g., per pay cycle).
  • Purchase confirmation file on each purchase date.
• Service-level expectations and escalation protocols will be defined in the Statement of Work.

Recordkeeping and Reporting

• Standard reports include:
  • Participation rates by entity and country.
  • Contribution totals by purchase period.
  • Shares purchased, refunds, and limits monitoring.
  • Plan reserve utilization and burn rate.
• Reports are retained for <Years> years in accordance with <Company Name>’s retention policy.

System Controls and Data Reconciliation

• Eligibility data is sourced from HRIS and validated monthly against payroll.
• Contribution data is reconciled:
  • Payroll-to-vendor reconciliation each pay cycle.
  • Vendor-to-GL reconciliation after each purchase.
• Exception handling procedures:
  • Discrepancy threshold of <Amount> triggers review and correction before purchase execution.

Implementation Guidelines

Project Timeline and Milestones

1. Strategy and design finalization: <Date> to <Date> (confirm discount, lookback, eligibility, and limits).
2. Legal and tax review: <Date> to <Date> (Section 423 qualification, non-423 country appendices).
3. Works council consultation (as needed): <Date> to <Date>.
4. Vendor configuration and SFTP setup: <Date> to <Date>.
5. HRIS and payroll integration testing: <Date> to <Date>.
6. Communications development and translation: <Date> to <Date>.
7. Enrollment window: <Start Date> to <End Date>.
8. Go-live and first purchase: <Date>.
9. Post-mortem and lessons learned: <Date>.

Change Management and Training

• Develop manager and HRBP toolkits, including FAQs, talking points, and country fact sheets for <Country>.
• Host webinars and office hours during enrollment.
• Provide job aids and short videos on <Vendor Name>’s platform demonstrating enrollment and account navigation.

Country Rollout Strategy

• Prioritize countries by employee population, legal feasibility, and payroll readiness.
• Phase 1: <Country>, <Country>.
• Phase 2: <Country>, <Country>.
• Document country-specific deviations and obtain Plan Sponsor approval before launch.

Risk Management

• Program risks and mitigations:
  • Securities law violations: Require pre-clearance and blackout policy adherence.
  • Data privacy breaches: Enforce least-privilege access and encryption in transit and at rest.
  • Operational errors in payroll deductions: Implement dual approvals and automated reconciliation.
  • Over-purchase beyond plan limits: Real-time limit checks with <Vendor Name>; maintain a share buffer.
  • Adverse tax outcomes in non-423 jurisdictions: Maintain updated tax matrix; conduct annual review with Tax and Legal.
  • Low participation: Targeted communications, manager enablement, and employee education.

Review, Governance, and Approval

Plan Amendments and Corporate Actions

• Material changes (e.g., discount, lookback, eligibility, share reserve) require approval by the Plan Sponsor and, where required, shareholder approval.
• Corporate actions (splits, dividends, spin-offs) will be handled in accordance with plan terms; Legal and Finance will coordinate adjustments to outstanding offerings.

Review Cycle

• This policy and related appendices will be reviewed at least annually by Total Rewards, with updates proposed to the Plan Sponsor by <Date> each year.
• Country appendices for <Country> will be reviewed semi-annually or upon material legal change.

Approval Matrix

Decision	Recommended By	Approver
New plan adoption	Total Rewards, Legal, Finance	Board of Directors / Shareholders as required
Discount or lookback change	Total Rewards, Finance	Compensation Committee
Add/remove participating entity or country	Total Rewards, Legal	Plan Sponsor Committee
Vendor change	Total Rewards, Procurement, IT Security	CFO or delegate
Policy update not impacting plan terms	Total Rewards	CHRO or delegate

Controls and Operational Procedures

End-to-End Calendar

• Publish an annual calendar with offering start dates, enrollment windows, purchase dates, payroll cutoff dates, and blackout windows.
• Align with fiscal close to minimize operational risk during earnings release periods.

Cutoffs and Exception Handling

• Enrollment cutoffs are hard stops; late enrollments are not processed.
• Contribution changes after the cutoff are effective in the next available pay period.
• Error corrections:
  • Over-deductions: Refund via payroll within <Number> pay cycles.
  • Under-deductions: Adjust in next payroll if within plan limits; otherwise carry forward to next purchase or refund.

Corporate Leaves and Special Populations

• Mobility cases (international assignments): Participation governed by host or home country sub-plan as designated in the mobility letter.
• Executives subject to 16b: Coordinate with Legal for additional restrictions as needed.

Documentation and Record Retention

• Maintain the following documents for <Years> years:
  • Plan document, sub-plan appendices, and prospectus.
  • Board and shareholder approvals.
  • Offering notices and communications.
  • Payroll, purchase, and reconciliation reports.
  • Vendor contracts and SOC reports.

Metrics and Success Criteria

• Participation rate target: <Percentage> of eligible employees in each offering.
• Average contribution rate: <Percentage> target by region.
• Retention and engagement correlation: Track participation vs. turnover for insights.
• Operational KPIs:
  • Reconciliation completion within <Number> business days post-purchase.
  • Zero material control deficiencies in internal audits.
  • Employee satisfaction score of <Score> or higher in post-offering survey.

Glossary

• ESPP: Employee Stock Purchase Plan that allows employees to buy company stock, typically at a discount.
• Section 423: U.S. tax code section defining qualified ESPP rules.
• Non-423 Sub-Plan: Plan component used for employees outside the U.S. or where 423 qualification is not feasible.
• Offering Period: The time window during which contributions are accumulated for one or more purchase dates.
• Purchase Period: A sub-period within an offering when shares are purchased, often quarterly or semi-annually.
• Lookback: Feature allowing purchase price based on the lower of the FMV at offering start or purchase date.
• FMV: Fair Market Value, generally the closing price on the relevant exchange.
• Eligible Compensation: Types of pay used to calculate contributions (e.g., base pay, bonuses).
• Qualifying Disposition: For Section 423, a sale occurring at least 1 year after purchase and 2 years after offering start.
• Disqualifying Disposition: A sale not meeting the qualifying disposition holding periods.
• Blackout Window: Periods when trading is restricted under insider trading policy.
• Plan Reserve: Total shares available to be issued under the plan as approved by shareholders.

Appendices

Appendix A: Key Dates Calendar Template

Offering	Enrollment Window	Offering Start	Purchase Dates	Payroll Cutoff
<Offering A>	<Start Date> to <End Date>	<Date>	<Date 1>, <Date 2>	<Date>
<Offering B>	<Start Date> to <End Date>	<Date>	<Date 1>, <Date 2>	<Date>

Appendix B: Sample Data File Layout (Eligibility Feed)

Field Name	Description	Example
Employee ID	Unique identifier	123456
Full Name	Legal name	<First Last>
Country	Work country	<Country>
Entity	Employing legal entity	<Entity Name>
Job Status	Active/Leave/Terminated	Active
Hire Date	For eligibility calculations	<Date>
Standard Hours	Weekly standard hours	<Number>
Eligible Compensation YTD	For limit monitoring	<Amount> in <Currency>

Communication Section: Employee and Manager Guide

Welcome to the <Company Name> ESPP

The Employee Stock Purchase Plan is a voluntary program that gives you an opportunity to buy <Company Name> stock at a discount through convenient after-tax payroll deductions. Many employees use the ESPP to build long-term ownership in the company while potentially benefiting from favorable purchase pricing.

Who Can Participate

If you are a regular employee of <Company Name> or a participating subsidiary, you may be eligible to join. Some employees, like interns or temporary workers, may not be eligible. Eligibility is determined at the start of each offering period and may vary in certain countries. Check your enrollment page with <Vendor Name> to confirm your status.

How the Plan Works

You choose a contribution rate as a percentage of your eligible pay, up to plan limits. Contributions are deducted from each paycheck during the offering. On each purchase date, your accumulated contributions buy shares of <Company Name> stock at a discounted price.

If the plan includes a lookback, your purchase price is based on the lower of the stock price at the start of the offering or on the purchase date, minus the plan discount of <Percentage>.

A Quick Example

Suppose the ESPP discount is 15% and your contribution rate is 10%. If the stock price was $20 at the start of the offering and $30 on the purchase date, the plan uses the lower starting price. With the discount, your purchase price would be $17 per share. If you contributed $850 during the period, you would buy 50 shares ($850 ÷ $17).

Your Choices: Start, Change, or Stop Contributions

You can enroll during the enrollment window posted on <Vendor Name>’s site. Once enrolled, you may be able to change your contribution rate or withdraw from the offering, depending on plan rules. Changes take effect in the next available payroll cycle. If you withdraw, your accumulated contributions will be refunded.

Key Dates You Should Know

• Enrollment window: <Start Date> to <End Date>
• Offering start: <Date>
• Purchase date(s): <Date 1>, <Date 2>
• Payroll cutoff for changes: <Date>

You will receive reminders before each date, and the calendar is always available on <Vendor Name>’s portal.

What Happens to Your Shares

Shares you purchase are deposited into your brokerage account at <Vendor Name>. You can view, hold, or sell your shares subject to any holding requirements and insider trading rules. If fractional shares are not allowed under the plan, any leftover cash will be returned to you.

Taxes: What to Expect

Purchases are made with after-tax dollars. In some countries, you may owe taxes when you buy shares; in others, taxes apply when you sell. If you are eligible under U.S. Section 423 rules, special holding periods can affect how any profit is taxed. Because tax situations vary, we encourage you to consult a personal tax advisor. <Company Name> and <Vendor Name> will provide general educational materials, but they are not tax advice.

If You Leave <Company Name>

If your employment ends before a purchase date, your participation will stop and your accumulated contributions will be refunded, unless local rules or plan terms provide otherwise. If you leave after a purchase has occurred, your shares remain in your <Vendor Name> account.

Important Reminders and Risks

• Stock prices can go down as well as up. Even with a discount, you can lose money.
• Follow <Company Name>’s Insider Trading Policy. Do not trade if you have material non-public information.
• Contribution changes and withdrawals must be made before posted cutoffs.
• Participation is voluntary. Consider your financial situation and risk tolerance before enrolling.

How to Enroll Now

1. Visit <Vendor Name>’s portal at <URL or navigation path>.
2. Review the plan overview and prospectus.
3. Choose your contribution rate and confirm the pay period start.
4. Accept the plan terms and submit your election.
5. Watch for a confirmation email and check your first paycheck for the deduction.

Need Help

• For enrollment or account questions, contact <Vendor Name> at <Phone/Email/Hours>.
• For eligibility and payroll questions, contact <Company Name> HR Support at <Email or Portal>.
• For insider trading policy questions, contact Legal at <Email>.

Final Note

We are excited to offer this benefit as part of our commitment to employee ownership. If you are new to ESPP, take a few minutes to learn how it works, consider your budget, and decide whether it fits your goals. We look forward to your participation in the next offering.

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Document Information:

• Document Type: Employee Stock Purchase Plan (ESPP)
• Category: Variable Compensation
• Generated: August 24, 2025
• Status: Sample Template
• Next Review: <Insert Review Date>

Usage Instructions:

1. Replace all text in angle brackets < > with your company-specific information
2. Review all sections for applicability to your organization
3. Customize content to reflect your company's policies and local regulations
4. Have legal and HR leadership review before implementation
5. Update document header with your company's version control information
6. At bottom of the document you find a short example on how the content could be communicated to end-users, for instance employees.

This sample document is provided for reference only and should be customized to meet your organization's specific needs and local legal requirements.