Should I Continue Participation in the IBM ESPP?
Ever since I started working at IBM I have been contributing to the IBM ESPP plan. If your not familiar with ESPPs (Employee Stock Purchase Plan), it is a company plan to encourage stock ownership among employees. Many large publicly traded companies including Microsoft and Capital One offer similar plans.
Up to last year, IBM's ESPP was a great benefit to employees. A participant could make up to a 10% payroll deduction to the ESPP. The price that a participant paid for the stock is the stock price at the time they started contributing (reset every 6 mos), or the stock price at the time you purchased the shares (whichever is lower) with a discount of 15 percent off the lower stock price. Either way, the participant buys the stock at a price that's lower than the current stock price.
However, this year IBM made significant revisions to the IBM ESPP. The plan has changed so that the purchase price is simply 5% off the current stock price. My understanding is that these changes where made to help IBM meet the new accounting changes to report stock option expensing.
While a 5% discount is still nice, a large part of this benefit has been wiped out. I have continued to participate through this year because as an investor I believe IBM's stock price was undervalued and had very little downside risk. However, IBM's stock price has rebound slightly, and should IBM's stock price continue to move up, the downside risk outweighs the 5% discount.
At the end of the current period (Dec 31) I am considering withdraw of my participation until I feel IBM's stock is a more attractive investment. After each period I plan to assess the potential of IBM stock as I would any other potential investment and if I think IBM would be an attractive investment I would consider enrolling in the IBM ESPP again.
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