In today’s business landscape, many companies have begun to offer employee stock plans as an extra incentive on top of traditional salary. Here is a quick look at three common types of employee stock plans.
Employee stock purchase plan (ESPP): Employees participating in an ESPP have the opportunity to buy stock within an “offering period,” which can last anywhere between three and 27 months. Employees can purchase shares at a heavily discounted price, which enables them to sell for an immediate profit or keep for a while.
Employee stock ownership plan (ESOP): Unlike ESPPs, which give employees the opportunity to buy stock, ESOPs require the company to contribute its own shares to employee plans. Over time, employees vest in their accounts, and the shares become available to them when they leave the company.
Stock option plan: One of the most common employee stock plans, stock option plans give employees the right to buy stock at a specified price once the options have vested. If the price of a stock rises significantly over time, employees can buy shares at the predetermined price and sell them for market value, pocketing the difference.