Some companies offer an employee share purchase plan, which allows employees to purchase shares directly from the company. An employee share purchase plan allows the employee to avoid brokerage fees and receive a discount to the current market price of the stock. The accounting for employee share purchase plans depends on whether the plan is a compensatory plan or a noncompensatory plan. If the plan is a noncompensatory plan, the company would increase the cash account for the cash received from employees when they purchase shares and increase the common stock and additional paid-in capital (if the stock has a par value) accounts accordingly. If the plan is a compensatory plan, the company would increase the cash account for the cash received from employees when they purchase shares BUT also record compensation expense for the amount of the discount given to the employees. The company would also increase the common …
