Employee stock purchase plans see uptick in post-Enron era

Invesco is a big believer in employee ownership. But in 2005, the investment management giant dropped a feature in its 401(k) plan that allowed employees to accumulate its shares in their retirement accounts.

The decision stemmed from worries about the risks of company stock in a retirement plan, where plan sponsors have a fiduciary responsibility to put the best interest of employees first.

“We believe strongly in having our employees line up and be owners of the business. It’s a great way to keep employees motivated and engaged,” says David Romero, Invesco’s director of benefits. “But when you think about everything that had happened with companies like Enron and Worldcom, we felt that having our own stock in the 401(k) lineup in a qualified plan wasn’t the right direction for us.”

Last year, Invesco was back with a new way for employees to buy its stock: an employee stock purchase plan (ESPP). An ESPP lets workers buy their employers’ stock outside retirement plans using after-tax dollars, often at a discount up to 15 percent below market rates.

ESPPs have been around for a while, but interest cooled off following 2005 accounting rule reforms that required companies to expense the cost of plans. The Great Recession also dampened interest in the plans because of their cost.

Many employers still like the idea of employee ownership as a human resources strategy. ESPPs are mounting a comeback as a way of extending ownership beyond the more sophisticated stock option plans offered to senior executives.

Learn more in my column at Reuters Money.