Why choose a nonqualified employee stock purchase plan?

Five advantages of nonqualified ESPP

1. No cap on purchase discounts: Nonqualified ESPPs allow employers to set any discount level and even offer matching shares, while 423 ESPPs are limited to a maximum 15% discount.
2. Simplified administration: Nonqualified ESPPs generally involve less complex tax reporting, payroll, and compliance requirements compared to the administrative obligations of 423 plans.
3. Flexible employee eligibility: Employers have greater flexibility to include or exclude employee groups and tailor participation terms, unlike the strict eligibility rules imposed by 423 plans.
4. Straightforward taxation: Taxation for nonqualified ESPPs typically occurs at purchase and follows simpler rules, whereas 423 plans require tracking for potential tax benefits and additional IRS reporting.
5. Global alignment and fairness: Nonqualified ESPPs can offer consistent benefits to employees worldwide, supporting fairness and alignment across the organization, while 423 plans are limited to US tax-qualified participants.

Ultimately, nonqualified plans offer the flexibility to design an employee share purchase program and global stock compensation aligned with your organization’s goals. By clarifying those objectives, you can craft a solution that supports both business objectives and your workforce—setting the stage for a successful and impactful strategy.