More Than One-Quarter of Employees Say Equity Compensation Will Help Them Meet Long-Term Goals

As employers feel increasingly responsible for helping participants with financial wellness, equity compensation is being viewed differently.

The pandemic has changed the way employees and employers alike view their workplace financial benefits, with an increased focus on offerings like equity compensation, according to findings from Morgan Stanley at Work’s inaugural State of the Workplace Financial Benefits Study.

The rising importance of equity compensation in the workplace serves as an essential benefit to not only help employees meet their long-term financial goals, but also to increase employee motivation and loyalty, the company says.

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According to the study, employees diverge over what makes equity compensation a strong motivator, with the top three choices being “gives me a stake in the success of the company” at 27%, “helps meet long term goals” at 26%, and “provides an additional source of income” at 23%.

Equity compensation programs are increasingly viewed as part of participants’ overall financial strategies, according to research from Fidelity Investments. One-quarter of the 1,448 company stock plan participants surveyed indicated they would tap their retirement account if they needed cash (the same percentage as in Fidelity’s 2016 survey); however, 62% said they would sell company stock if they needed cash—an increase from 58% in 2016.

The 2018 survey found that when participants sold their company stock, 28% used the proceeds for paying bills or debt. Thirteen percent reinvested the proceeds in stocks/mutual funds, and 9% reinvested them in a retirement savings account. Nine percent each also reported they used proceeds as emergency savings and for college expenses, savings or student loan payments.

Retirement savings is, by far, the most common goal for those building equity compensation wealth, according to Schwab Stock Plan Services. Amy Reback, vice president of Schwab Stock Plan Services, previously told PLANADVISER that having a diversified portfolio of both taxed and tax-deferred savings is a good strategy: “People who enter retirement with the appropriate amount of taxed and tax-deferred savings are more likely to have an enjoyable retirement,” she explained. “If you only have tax-deferred savings, you are still taxed when you draw down those assets, and you could have a pretty large tax bill. It could be as much as 20% or 25% of your assets.”

Equity compensation plans are not just for executives—employers can make them available to rank-and-file employees as well. However, lower-income employees may not feel they can afford to participate in them. Aaron Shapiro, founder of Carver Edison in New York City, says, on average, only 30% of workers are able to participate and very few of those max out contributions. Carver Edison offers a program called Cashless Participation, an enhancement to employee stock purchase plans (ESPPs) that allows employees to maximize their ESPP contributions with limited payroll deductions.

“Our study shows equity compensation is a powerful motivator that can help employees meet their financial goals, while helping employers attract and retain talent,” says Scott Whatley, Managing Director & Global Head of Equity Solutions, Morgan Stanley at Work.

“As this benefit continues to be sought after by employees at all levels, the need to effectively scale it becomes critical. Further, for companies to optimize this offering, they must be mindful of awareness and comprehension gaps among employees and provide them with meaningful communication and educational tools so they can maximize the advantages of their equity.”