How does an ESPP discount and lookback actually work?

An employee stock purchase plan lets you buy company stock through payroll deductions, usually at a 15% discount. The valuable feature is the lookback: the plan prices your purchase off the lower of the stock price at the start or end of the offering period, then applies the discount. If the stock rose from $80 to $120, you'd buy at 15% off the $80 price – paying $68 for a $120 share, an instant ~76% return. A qualified ESPP under Section 423 lets you defer tax until you sell. Because the discount is close to free money, many people max the ESPP and sell promptly to lock the gain and reduce concentration. Annual contributions are capped at $25,000 of stock value (measured at grant).