Should Baker Hughes Employees Invest In The ESPP?

A Guide To Maximizing Your Baker Hughes Employee Stock Purchase Program

Baker Hughes employees have the opportunity to invest in the company through the Employee Stock Purchase Program (ESPP). But what exactly is the ESPP, and is it a good investment opportunity for you? In this article, we’ll dive into the details of the Baker Hughes ESPP and help you decide if it’s a smart investment for your financial future.

What Is An ESPP?

An Employee Stock Purchase Plan (ESPP) is a benefit offered by some companies to their employees that allows for the purchase of company stock at a discounted price, typically through payroll deductions. The goal of an ESPP is to give employees a stake in the company’s success and to incentivize them to stay with the company long-term.

How Does The Baker Hughes ESPP Work?

The Baker Hughes ESPP allows eligible employees to purchase company stock at a 15% discount from the market price. Employees can contribute up to $12,000 ($3,000 each quarter) per year.

Employees can enroll in the ESPP once per quarter. Contributions are deducted on an after-tax basis from payroll. The stock is purchased at a 15% discount on the last day of trading each quarter. Employees can then choose to hold onto the stock or sell it for an immediate profit.

Is the Baker Hughes ESPP a Good Investment?

The answer to this question is almost always yes, but it depends on several factors, including your financial goals, risk tolerance, and the current state of the stock market.

Benefits of Investing in the Baker Hughes ESPP

There are multiple benefits for employees participating in the Baker Hughes ESPP, the most notable being the 15% discount.

Discounted Stock Price

The primary advantage of the Baker Hughes ESPP is the discounted stock price. The Baker Hughes ESPP is structured so that it is a 15% discount from the last trading day of each quarter. This is a massive benefit for Baker Hughes employees and opens the door for the opportunity to realize an immediate gain, even if the stock price does not increase.

No Broker Fees

The program allows for stock purchases without any brokerage commissions or fees.

Flexible Participation

There is no mandatory holding period for the stocks once purchased, providing flexibility to the employees.

Risks of Investing in the Baker Hughes ESPP

While the benefits of the ESPP outweigh the drawbacks, there are a few risks to keep in mind.

Stock Market Fluctuations

As with any stock investment, there is always a risk of market fluctuations. If the stock price decreases, employees may lose money on their investment. It’s important to consider your risk tolerance and the current state of the stock market before investing in the Baker Hughes ESPP.

Limited Diversification

Investing in the Baker Hughes ESPP means putting a significant portion of your investment portfolio into one company’s stock. This lack of diversification can be risky, as the success of your investment is tied to the success of the company. However, as stated above, an employee can sell the stock immediately for a gain and reinvest those funds in a diversified portfolio.

Tax Pitfalls

If the rules outlined below are not followed, Baker Hughes employees can find themselves with an unexpected increase to ordinary income.

This is also a non-qualified ESPP, which means the discount received on the purchase of stock is taxable in the year that it is purchased.

Taxation

Gains on Baker Hughes stock within the ESPP may be treated as long-term capital gains if held long enough. Capital gains rates are generally lower than ordinary income rates. In order to receive this preferential treatment on the ESPP, the two conditions for a “qualifying disposition” must be met:

• The stock must be held for at least 1 year from the purchase date AND
• The stock must be held at least 2 years from the offering date

For Baker Hughes, the offering date is defined as the first day of each quarter. Since the purchase date is the last day of each quarter, Baker Hughes employees must hold the stock for a year and 3 quarters from the purchase date in order to receive preferential capital gains treatment on the appreciation.

In a typical brokerage account, the only requirement to receive long-term capital gains treatment is to hold the stock for at least year. This fact adds to the argument for selling the discounted ESPP stock immediately and investing the proceeds into a diversified portfolio.

It is also worth noting that the value of the 15% discount will be taxed as ordinary income to the employee when the stock is purchased, regardless of how long it is held. We have provided an illustration of the taxation of ESPP stock below:

For more information on the taxation of stock compensation, please refer to our article on the topic.

Conclusion

The Baker Hughes ESPP is a valuable opportunity for employees to invest in company stock at a discount. However, it’s important to be strategic when deciding how to manage the stock within the ESPP. As always, consult with your financial advisor to maximize the Baker Hughes ESPP, avoid tax pitfalls, and achieve the retirement you envision.