SPP feedback

djb thoroughly responds to my request to poke at the ups and downs of participating in a stock purchase plan at work. I'll take time here to address some new issues he raises, and better explain a couple things.

I agree that there's no "pre-tax gain." I think I understand the W-2 taxing on the 15% discount for those who turn around and sell granted shares right away; it goes some way toward explaining why the company insists on being notified if an employee sells those shares within 18 months of the grant (the company needs to withhold some additional tax). But what does the employee declare as the basis price if he sells shares after, say, two years? I would have thought one would use the discounted price as a basis in that case. Is that correct?

It is interesting that your company’s program discounts from the lower of the prices, beginning or ending, in the six month period. Our program also did that for many years, but recently changed that, shifting to discounting from the end price only. The lame excuse offered by the HR drones was that there were new difficulties under Sarbanes-Oxley associated with properly expensing the discount. At the time I was very worked up about it because the company didn't have the backbone to admit that they were trimming an expense by taking away another part of a benefit, pretending instead that they had no choice. The fact that your company still does their SPP the old way is simply more proof to the contrary.

Your point about the company delaying distribution of stock certificates is well taken. In fact, it is usually a full two weeks from the end of each period before we get new stock certificates in our hands. Naturally there is a risk of significant price change during that time. My coworker and I though both have stock built up in our respective trading accounts that we've held for a long time. If we account for shares in a first-in-first-out manner, then it seems perfectly legitimate that if I know I'll be receiving a stock certificate in two weeks that has 300 "excess" shares, I can sell that number of shares immediately from blocs I've been holding for three to four years.

That's also a good point about wealth diversity. As of this date if I add together the value of all my company stock interests, it constitutes about ten percent of the net worth of my wife and I together. So if it all disappeared next week, that would be the extent of the impact. I feel okay with that, but admittedly I have not decided what the magic percentage should be (25? 30?) beyond which I sell down to purchase different securities. And I should probably think about that soon, because there's a natural (Enron-esque) tendency to not see over-concentration of wealth objectively when that concentrated wealth is going gangbusters.

As for the final queries, while I do not know for sure whether the company is acquiring shares from the open market for the SPP or whether it is inventing new shares, I can state unambiguously that the number of plan shares is finite. That aspect is written into the public filings. It is stated that for any six month period, the maximum shares issued is X (it's in the tens of thousands), and for the full multiyear plan period the maximum number issued is Y (a few hundred thousand). This makes me think that the shares are new issues, diluting existing holdings, since in that case a company has to publicly disclose how such shares are issued and what the maximum level of dilution will possibly be over the time period. The company is quite serious about those maxima, as we found out during the recession. The SPP was oversubscribed not from a sudden up tick in employee participation, but simply from the stock price falling so low. There was withheld money for about 1.5*X shares -- therefore, participants only received around two-thirds of the shares they signed up for. The excess dollars that did not purchase shares simply showed up on the next paycheck.