Hi everyone!
I would welcome some feedback on what you all think about employee shareholder schemes. In particular, if a government has to bail out or take over a company (in order to save jobs, boost the economy etc.), what would happen to the employees’ shareholdings in their company? Would they have to accept the value of their holdings getting wiped out?
Also, do you think these schemes are worthwhile? On the one hand, companies sometimes offer incentives like giving the employee additional shares or discounted prices, but on the other it seems to me like a lack of diversification if you are working at the same organization.
Thank you, and have a nice day.
Employee shareholder scheme
Re: Employee shareholder scheme
It depends on the details of the scheme 
I used to participate in one, I think I could buy shares at a 5% discount, something like that. I made it my policy to sell them at market rates as soon as possible (as long as they weren't at a loss), for the same diversification issue you mentioned.
In the end it turns out I would have been better to hold them all rather than sell ASAP, because the company got bought out for a price higher than the average stock price, but that's hindsight and I still think it was the right decision. Although, at 5% discount, it's arguably too much risk to be taking for not much reward. If it's 50% or more, it's a no-brainer - though I'd still sell them off ASAP. One minor benefit is that if your company has perks for stockholders, you might become eligible for those perks while you hold the stock.
There's another reason other than diversification for not holding: If you wouldn't buy the shares normally, it also doesn't make sense to hold on to them just because you bought them at a discount / are an employee*. You obviously would rather spend your money on other things, so sell them and spend it on those things.
*Unless you have insider information, but trading based on that information is illegal.
I used to participate in one, I think I could buy shares at a 5% discount, something like that. I made it my policy to sell them at market rates as soon as possible (as long as they weren't at a loss), for the same diversification issue you mentioned.
In the end it turns out I would have been better to hold them all rather than sell ASAP, because the company got bought out for a price higher than the average stock price, but that's hindsight and I still think it was the right decision. Although, at 5% discount, it's arguably too much risk to be taking for not much reward. If it's 50% or more, it's a no-brainer - though I'd still sell them off ASAP. One minor benefit is that if your company has perks for stockholders, you might become eligible for those perks while you hold the stock.
There's another reason other than diversification for not holding: If you wouldn't buy the shares normally, it also doesn't make sense to hold on to them just because you bought them at a discount / are an employee*. You obviously would rather spend your money on other things, so sell them and spend it on those things.
*Unless you have insider information, but trading based on that information is illegal.
Re: Employee shareholder scheme
Adamu is pretty much on the money for everything.
One additional concern though is that as much as it would be nice to divest of them asap once it's possible, a lot of the time you'll be locked out of selling by the fact you're an employee and the possibility of trading on inside information. At my workplace I'm strongly recommended to contact an internal email before buying/selling company stock to check if it's ok to do now.
One additional concern though is that as much as it would be nice to divest of them asap once it's possible, a lot of the time you'll be locked out of selling by the fact you're an employee and the possibility of trading on inside information. At my workplace I'm strongly recommended to contact an internal email before buying/selling company stock to check if it's ok to do now.
Re: Employee shareholder scheme
Same here. I sell them asap for diversification reasons.
Re: Employee shareholder scheme
I realised I only commented about stock purchase schemes, not grants or options. For those, there are tax implications.
Grants: You pay income tax (not capital gains) on the value of the stock at the time you receive it.
Options: You pay income tax (not capital gains) on the difference in the price of the option, and the market value when you exercise.
(For purchase schemes you pay income tax on the discount / part the company pays).
You also pay capital gains on any further rises in value of the stock between when you receive it and sell it.
Both grants and options can have big effects on the amount of income tax you pay, including moving you up into a higher tax band and increasing your residence tax the following year, with the added risk that the stock price could actually go down before you sell, even though you already paid tax on the value.
So you can get a windfall, but it comes with a lengthy tax tailwind. 
Grants: You pay income tax (not capital gains) on the value of the stock at the time you receive it.
Options: You pay income tax (not capital gains) on the difference in the price of the option, and the market value when you exercise.
(For purchase schemes you pay income tax on the discount / part the company pays).
You also pay capital gains on any further rises in value of the stock between when you receive it and sell it.
Both grants and options can have big effects on the amount of income tax you pay, including moving you up into a higher tax band and increasing your residence tax the following year, with the added risk that the stock price could actually go down before you sell, even though you already paid tax on the value.
So you can get a windfall, but it comes with a lengthy tax tailwind. 
Re: Employee shareholder scheme
Employee stock purchase plans can be a very good deal, but it really depends on the details of your company's plan.
The big attraction is the discount, of course. In my company's case I get 10%... and a guaranteed 10% advantage over the market is certainly nothing to sniff at. It's very good in fact. The only other advantage is that you can purchase stocks in small lots, whereas if you were buying on the market, the minimum purchase on Japan is usually a block of 100 shares.
The negatives are a lack of diversification, as you mentioned, and also a lack of liquidity. Most companies simply keep a ledger of the stocks you own in-house, and will only move them to a brokerage account upon your request. This could take several days or even weeks to complete. Also, you can only usually move the stocks in blocks of 100, reducing liquidity again.
Your question about government bailouts... I think you might be misunderstanding what a govt bailout is. A bailout is (usually) not a buyout, and thus you simply bear all the risks that any holder of that stock bears. If the company is getting a bailout, things are probably not going too rosy, but that doesn't mean the shares will suddenly disappear and be worthless.
Ultimately it depends on your company, how your see it's prospects for the future, and how good the discount is. In my case, as I work for a large and very diversified conglomerate, I consider the employee stock purchase plan as the Japan exposure portion of my portfolio. I buy nothing else related to Japan. The 10% bonus I get has compounded extremely nicely over the years I've been enrolled in the plan.
The big attraction is the discount, of course. In my company's case I get 10%... and a guaranteed 10% advantage over the market is certainly nothing to sniff at. It's very good in fact. The only other advantage is that you can purchase stocks in small lots, whereas if you were buying on the market, the minimum purchase on Japan is usually a block of 100 shares.
The negatives are a lack of diversification, as you mentioned, and also a lack of liquidity. Most companies simply keep a ledger of the stocks you own in-house, and will only move them to a brokerage account upon your request. This could take several days or even weeks to complete. Also, you can only usually move the stocks in blocks of 100, reducing liquidity again.
Your question about government bailouts... I think you might be misunderstanding what a govt bailout is. A bailout is (usually) not a buyout, and thus you simply bear all the risks that any holder of that stock bears. If the company is getting a bailout, things are probably not going too rosy, but that doesn't mean the shares will suddenly disappear and be worthless.
Ultimately it depends on your company, how your see it's prospects for the future, and how good the discount is. In my case, as I work for a large and very diversified conglomerate, I consider the employee stock purchase plan as the Japan exposure portion of my portfolio. I buy nothing else related to Japan. The 10% bonus I get has compounded extremely nicely over the years I've been enrolled in the plan.
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Re: Employee shareholder scheme
My wife's cousin was a pilot working for JAL. His wife invested most of their money in the stock.
Then the company went bust, he lost his job, and the stock went to zero. Ooops.
He found a job with another airline for about half the wage.
Then the company went bust, he lost his job, and the stock went to zero. Ooops.
He found a job with another airline for about half the wage.
English teacher and writer. RetireJapan founder. Avid reader.
eMaxis Slim Shady
eMaxis Slim Shady
Re: Employee shareholder scheme
Sounds like what happened to a lot of people at enron.RetireJapan wrote: ↑Wed May 27, 2020 2:28 am My wife's cousin was a pilot working for JAL. His wife invested most of their money in the stock.
Then the company went bust, he lost his job, and the stock went to zero. Ooops.
He found a job with another airline for about half the wage.
Don't keep all your eggs in the same basket.
Re: Employee shareholder scheme
I participate in the ESPP of my company.
I think it is a good choice, the 15% discount is basically free money.
My company also pay good dividends (and has so for many decades), so it seems a good investment for me.
Of course, most of my investiments are somewhere else, so the ESPP is just another form of investment in my portfolio.
As long as you don't keep all your eggs in the same basket, to me the ESPP is a no brainer.
I think it is a good choice, the 15% discount is basically free money.
My company also pay good dividends (and has so for many decades), so it seems a good investment for me.
Of course, most of my investiments are somewhere else, so the ESPP is just another form of investment in my portfolio.
As long as you don't keep all your eggs in the same basket, to me the ESPP is a no brainer.