What is a Directed Share Program?

A directed share program, or DSP, is a company-sponsored plan that allows employees and usually immediate family members to acquire shares of stock issued by the company. In some cases, directed share programs are also open to participation by other individuals or entities that have some established relationship with the company. In order to function, each program defines the scope of the plan, including the number of available shares and what qualifications must be met in order to participate.

Putting together a directed share program is often an attractive way to provide additional benefits to company employees. By allowing the employees to acquire shares of stock in the company, the relationship between employee and employer takes on another dimension. Along with enjoying compensation for services rendered as an employee of the company, the individual also begins to feel a personal stake in the well being of corporation.

A directed share program begins with the company setting aside a pre-determined number of shares that may be purchased by the employees. The terms of DSPs may vary slightly, but they always address certain essential components. There are always specific conditions that the employee must meet in order to participate in the plan. For example, the employee may have to be classified as full-time in order to purchase shares. It is also not unusual for companies to require that the employee be with the company for a minimum amount of time before extending the privilege of participating in the program.

When relatives of employees are eligible to participate in the directed share program, there is usually some type of definition of what type of familial connection must exist. A company may choose to limit participation to immediate family only, such as a spouse, child, sibling or parent. In addition, the employee must also be eligible for participation, even if he or she chooses to not actively participate at the time. Should the employee sever relations with the company, the relatives lose their privilege to participate in the program.

Along with defining the qualifications for employees and relatives, this type of program will also establish criteria that other parties must meet in order to participate. This may include the type of relationship to the company, such as a vendor or supplier who generates a certain level of business with the company. Another example of an acceptable relationship could be a customer who currently does a certain level of business volume with the company per annual period.

All eligible participants who participate in a directed share program are allowed to purchase the available shares at the current public offering price. Their ability to purchase additional shares as they become available remains in effect unless circumstances change and they no longer meet the eligibility requirements associated with the program.