A Creative Approach to Stock Purchase Plans

Schneider Electric, a 130,000-employee multinational company, is offering employees an opportunity to borrow money to buy shares. The loans come from a bank, but the arrangements were made by the company. For each share an employee buys, nine more are purchased on the employee's behalf. At the end of the plan's holding period, the employee receives shares having a value equal to the original share purchased plus an amount equal to 5.5 times the increase in value (if any) of that share. Thus, for the price of one share, the employee receives the value of that share plus 55% of the gain (if any) on all ten shares. The bank receives the remainder of the gain.This gives the employee the chance to make a substantial gain with a relatively small risk, since the bank does not have recourse to the employees. The lender hedges its risk through buying puts and calls on Schneider stock.