A study from UBS finds employees value their equity compensation more when they receive education and advice about it, and working with an adviser boosts confidence in decisions about equity awards.

For its latest edition of “UBS Participant Voice,” the firm surveyed 1,046 U.S. equity award plan participants across industries with at least $5,000 in investable assets between September 12 and September 24, 2019. At that time, it found that, since 2013, there’s been a steady increase in the percentage of employees who highly value their equity awards—from 26% in 2013 to 42% in 2019—yet one in three (36%) still saw minimal value in them.

The highest appreciation for equity awards was found at companies that deliver education and personalized advice that put equity compensation in the context of a participant’s overall financial picture, design a clear plan for easy engagement, and drive a strong culture that reinforces the company’s growth potential. Appreciation for equity awards was lowest at firms that did none of these things.

“We’ve learned employees do not value what they don’t understand, making education and advice on awards very important. We’ve also discovered a few key steps employees can take to increase the value they place on awards. Incorporating equity compensation into their broader financial picture, receiving holistic advice and allocating investments based on that advice increases employees’ perceived value by two to three times,” Mike Nannini, head of Client Management, Business Development and Industry Engagement with UBS Workplace Wealth Services, tells PLANADVISER.

The study found employees who were more satisfied with the education they receive regarding their equity compensation tended to value them more. However, fewer than half said they received education (46%) or advice (41%) about their equity awards.

Eighty percent of employees who received personalized advice reported that they feel good about their financial situation, compared with 58% who did not receive personalized advice. Those who receive advice also feel more confident about their decisions regarding their equity compensation (75% vs. 51%), feel more confident about retiring when and how they’d like (76% vs. 56%) and feel more confident about achieving financial goals (79% vs. 57%).

The need for education and advice about equity compensation was highlighted even further when UBS did a follow-up to the survey in May. After declines in the stock market caused by the COVID-19 pandemic, the percentage of employees who indicated they highly value their equity awards fell to 34%, while the percentage who said they saw minimum value in them increased to 41%.

More than half (54%) of survey participants reported that they sold their company stock because of the market volatility, with men, younger employees and wealthier employees more likely to have sold. UBS found that among those who sold their stock:

46% moved the money to cash or cash equivalents (CDs, money market funds);

44% invested in other asset classes (e.g., bonds);

42% invested in other stocks;

35% paid down debt; and

31% spent the money.

Yet, by the time the survey follow-up was fielded—when the markets had bounced back—59% reported they regretted selling their stock. Two-thirds (67%) of those who received advice said they felt very confident in their decisions about equity compensation. In addition, 60% of employees said they are more interested in working with an adviser.         

“When looking at pre- and post-COVID-19 onset data, we see a strong need for advice for financial matters in general and equity awards in particular. Participants that consulted with an adviser were more confident in their decisions, whether that meant making changes or staying the course. This can be powerful for investors given the vast uncertainty in so many areas of our lives. At the end of the day, advice matters, regardless of times,” Nannini says.

Plan participants use their equity awards mainly to save for a specific goal, such as retirement (44%) or for general wealth accumulation (36%), according to UBS. Men are more likely to use company stock for long-term savings (48% vs. 39% of women) while younger participants are least likely to use it for long-term savings goals (34% vs. 50% of those ages 51 and older).

When comparing equity compensation to other factors, including base salary and 401(k) contributions, equity compensation pales as a factor in the ability to accumulate savings and wealth for most equity plan participants. However, for those who have six or more vesting experiences, equity awards are seen as rivaling salary and 401(k) contributions as ways to accumulate wealth (51%, 55% and 55%, respectively). UBS says this is likely due to more experienced participants receiving larger awards over time, as well as seeing the growth potential of their company stock.

When looking at how equity plan participants make decisions about their equity compensation, they are, first and foremost, putting their awards within the context of a long-term financial plan. This is true for all vesting experience levels—from 46% of those with less than three vestings to 58% for those with six or more vestings.

Equity compensation plans are not just for executives—employers can make them available to rank-and-file employees as well.

The full UBS study report, as well as the entire “UBS Participant Voice” series is at http://ubs.com/participantvoice.