Skip to main content

You are here

Advertisement

Equity Compensation Making up More of Employees’ Net Worth

A new survey examining how employees use their equity compensation finds that workers are relying heavily on such benefits to build wealth, but maybe a little too much.

Schwab Stock Plan Services’ survey of 1,000 equity compensation plan participants who receive stock options or restricted stock awards and/or participate in employee stock purchase plans (ESPPs) reveals that equity compensation accounts on average for nearly 30% of employees’ net worth.

Of the generations, however, Millennial employees were found to have an even greater share of their net worth in equity compensation at 42%, compared to their Generation X and Baby Boomer counterparts at 24% and 19%, respectively. Of course, this is probably because Millennials haven’t built up nest eggs as big as their elders have, so the equity compensation portion makes up a greater share.

Meanwhile, nearly three-quarters (73%) of employees surveyed also own company stock outside of their equity compensation plans, with most (44%) in their workplace 401(k) retirement plans.

Schwab warns, however, that many employees’ portfolios may be overweighted in company stock even though survey respondents say they regularly rebalance their accounts. Schwab says it typically recommends having no more than 10-20% of an investment portfolio in company stock, depending on an individual’s financial situation.

Yet, despite claims of rebalancing, the percentages of company stock ownership remain high. According to the findings, 81% of employees say they have either rebalanced their investment accounts in the past 12 months (55%) or their account rebalances itself automatically (26%). What’s more, nearly two-thirds of this group say they take their equity compensation or ESPP into account when rebalancing.

“It’s clear that employees value their equity compensation as a major driver of wealth, but they must also appreciate how important it is to diversify,” notes Marc McDonough, senior vice president of Schwab Workplace Financial Solutions. “With so many variables, we encourage employees to ask for help to make sure they are thoughtfully integrating their equity compensation into their overall financial picture.”

Recruitment and Retention

Beyond creating financial incentives for employees, equity compensation plans can have a significant impact on attracting and retaining talent. Nearly 40% of respondents — including 60% of Millennials — cited equity compensation as either the main reason or one of the main reasons they took their jobs.

What’s more, 75% of respondents deem equity compensation as either a very important or an essential benefit. Among the reasons why respondents value their equity compensation:


  • It allows them to participate in the growth of their company (45%)

  • They believe it will help them to significantly build their wealth (44%)

  • It means the success of the company will play an important part in their own success (42%)

  • They believe it helps alleviate some of their financial stress (38%)


Professional Guidance

Meanwhile, most respondents apparently recognize the value of financial advice, but the survey results reveal contradictions between that recognition and their reported behavior.

Three-quarters of respondents say they would be either very or extremely confident in their ability to make the right decisions about their equity compensation if they had the help of a financial advisor. Yet, more respondents said they rely solely on independent research (37%) when rebalancing than from interacting with a financial advisor (24%) or asking their employer (16%).

“What’s striking is that participants largely believe that professional guidance can lead to better outcomes, but many are hesitant to use programs designed to address the specific issues they are facing because they feel their situation may not be complex enough to warrant professional advice,” notes McDonough. “One of the most beneficial aspects of such programs is helping workers to create a financial plan that can balance short- and long-term priorities and show them the next step forward.”

The online survey was conducted July 12-20, 2018, and is based on self-reported data of 1,000 respondents who are currently participating in an equity compensation plan.

Advertisement