Employee Stock Purchase Plan - ESPP

There are two basic points of rationale to an employee stock purchase plan. One is to reward employees with something other than cash. This compensation system allows the company to save cash for other stuff (materials, expansion, corporate excursions to the Bahamas, etc.). The other rationale runs so as to give employees some skin in the company's future. It makes the company more than just a source of a paycheck...the employee becomes part owner (in a vanishingly small way, but still).

The ESPP is a formal way to make this transaction happen. The plans allow employees to buy stock in the company.

You're thinking, "wait, they buy the stock? So, like, they pay their own money to get it...what kind of deal is that?" Fair enough, but often the company gives its workers a deal. It's common for shares to be offered at a discount to the market rate, meaning the employees are already showing a paper profit when the deal happens. And if the stock goes up, they get to bank that profit as well.

In an ESPP, the money for the stock purchases are deducted in little bits from an employee's paycheck, like contributions to a retirement fund.

Row, row, row, your boat...all in the same direction.