Accounting Best Practices, Fifth Edition

11–9. Outsource the Company Stock Purchase Plan

Many publicly held companies have a stock purchase plan, which they use to attract incremental investments by long-term investors who wish to buy small numbers of shares on a regular basis. Some plans even take regular deductions from investor bank accounts on an ongoing basis, so repeat contributions require no effort by investors. An additional feature is that some plans automatically reinvest dividends (known as dividend-reinvestment plans, or DRIPs). Such plans are valuable, because they attract those investors who are least likely to sell off shares at the slightest sign of earnings volatility. The only problem with these accounts is the cost of servicing them, which is typically in the range of $19 per year for each investor. Though this may seem insignificant, it can add up if there are thousands of participating investors.

A solution is to shift the plans over to a brokerage firm. A brokerage firm is more than happy to take on these plans, since they can then charge fees to the participating investors. In essence, the company has shifted the cost of the stock purchase plan to investors. However, if making the investment experience as simple and trouble-free for investors as possible is more important to a company, then retaining the function in-house in order to avoid charging brokerage fees to them may be a better approach. Another problem with this method is that on-line brokerages that handle these accounts allow investors ...