Business Sense

by Patrick J. Walsh

for the Business Journal

With a strong economy and the lowest unemployment rate in 25 years, our country is experiencing one of the most severe labor shortages we've seen in a long time.

In a survey of human resources executives last year, the American Management Association reported that employers expect the scarcity of skilled workers to persist well into the new century.

In a tight labor market, it's more important than ever that your company be able to compete for the most qualiÞed employees. In this competitive environment, employee beneÞts play an important role in attracting and retaining valuable employees.

One of the most cost-effective ways to add to your company's array of beneÞt choices is to offer your employees a means of buying shares in your company through a stock-purchase plan.

A stock-purchase plan provides employees with an attractive way to invest for the future, and it's a powerful strategy for motivating employees to work toward your company's goals.

What the plans are. A stock-purchase plan enables your employees to buy shares of your company's stock through regular payroll deductions.

Your employees select the dollar amount to be deducted each period, typically monthly or quarterly, and their contributions are used to purchase shares.

Each employee's account is credited with whole and fractional shares of company stock based on the employee's payroll deduction and the purchase price of the stock.

For example, if an employee chooses to invest $100 a month, and the stock is purchased at $49 a share, the account is credited with 2.0408 shares.

Employee accounts are credited with any cash dividends paid on stock held in the account, which can be automatically reinvested in additional shares. If employees choose to hold stock certiÞcates registered in their names, dividends are paid directly to the employees.

Generally, there are three types of stock- purchase plans: qualiÞed, contributory and noncontributory plans. QualiÞed plans offer stock at a discount of up to 15 percent from fair market value and typically use Treasury shares, which are shares owned by your company.

Contributory plans feature a full or partial company matching contribution to employee payroll deductions. Share purchases are then made in the open market for allocation to employees' accounts.

Non-contributory plans enable employees to make open-market purchases without a company matching contribution.

In recent years, qualiÞed plans have become widely popular with employees. Employers are choosing this type of plan about 2 1/2 times more often than open-market programs, according to Merrill Lynch research. Another trend we've seen is for companies to extend stock purchase plans to their non-U.S. employees.

You can extend the beneÞts of your plan by offering employees the chance to buy additional shares of company stock besides those purchased through payroll deductions. You may be able to offer discounted transactions fees and commissions on these additional shares.

Plan sponsor support. If you sponsor a stock-purchase plan in-house, administration and recordkeeping can consume hours of your time. Many companies choose a third party, such as a Þnancial services Þrm, to provide recordkeeping and brokerage services for their plan. A third-party service provider can increase the quality and professionalism of your plan while enabling you to cut costs.

When you're looking for a service provider, look for convenience and comprehensive services. You'll want as little extra paperwork as possible, so see whether employees can enroll themselves through an automated phone system.

Your human resources department will send payroll and demographic information to the service provider, a task that is easily completed if the data can be sent by computer.

Look for a full range of administrative reports, including quarterly activity reports summarizing all transactions and total account holdings. For plans that require Securities and Exchange Commission reporting, look for reports that detail share sales and transfers by date.

You'll also want full employee education and communications support so employees will take advantage of your plan.

In addition to printed materials, look for a package that includes a presentation for enrollment meetings. You'll want information packages for new participants that contain information about the plan and how employees can track their accounts.

Give yourself an edge. Give yourself an edge in this competitive labor market by offering employees a stock-purchase plan. Talk with your Þnancial consultant about how easy and cost-effective it can be to sponsor a stock-purchase plan.

(Patrick J. Walsh is senior vice president and director, Group Employee Services, for Merrill Lynch.)

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