New survey results show that equity compensation plan participants have an increased appetite for financial advice as the COVID-19 pandemic has driven many to exercise options or sell shares.
Findings from Schwab’s 2020 Equity Compensation Plan Participant Survey show that nearly two in five (39%) employees say they are more likely to need financial advice due to the pandemic. The top three areas where employees currently need the most help and advice are retirement planning (32%), investing (28%) and taxes (25%). These are followed by developing a financial plan (22%) and balancing equity compensation with other investments (22%).
Of those who recently exercised or sold equity compensation, two-thirds (67%) were influenced by the market volatility and economic downturn related to the pandemic, according to the survey, which examines the attitudes and behaviors of 1,000 equity compensation plan participants.
While the majority of participants are planning to use their equity compensation for retirement (51%), Schwab notes that there was a slight uptick this year in those turning to their equity compensation to help meet immediate financial needs, such as paying off debt (9%, up from 5% in 2019) and short-term emergencies (7%, up from 5% in 2019).
“For many, reprioritizing those needs is a practical response to an unexpected event such as a furlough, reduced income or unexpected medical expenses,” says Amy Reback, vice president of Schwab Stock Plan Services. “These are difficult, confusing decisions within what are arguably the most challenging circumstances in our living history. What has remained the same is the desire to make the best financial decisions possible, and the interest in having access to the tools, advice and guidance needed to make those decisions.”
Help Wanted
According to the findings, Millennials have experienced a more pronounced impact compared with other generations, and may need more help in developing a financial plan. Nearly all (95%) Millennials who recently exercised or sold equity compensation report that the pandemic influenced their decision, and more than a quarter (27%) of this group did so because they were under financial stress.
Additionally, while more than three-quarters of survey participants reported satisfaction with their employers’ communications about their equity compensation plans during the pandemic, most (85%) would like their employer to provide more education.
Schwab notes that a majority aren’t sure how specific equity compensation types fit into their portfolio, and their confidence about making the right decisions increases from 73% to 83% when they have the help of an advisor.
Talent Retention
Similar to the firm’s earlier studies, equity compensation was found to play an important role in the employer-employee relationship. More than three-quarters of respondents (77%) say that equity compensation is a very attractive benefit, and an increasing number (37%, up from 28% in 2019) consider it to be the “main reason” or “one of the main reasons” they took their current jobs.
Millennial respondents are the generation most likely to identify equity compensation as the main reason or one of the main reasons they chose their current employers (53%).
“Employees, especially Millennials, are demanding equity compensation as a highly desirable component of workplace benefits packages,” emphasizes Reback. “Employers who offer equity compensation beyond the C-Suite as part of their overall employee value proposition significantly differentiate themselves from those who only offer health and retirement benefits.”
Equity compensation can also be a significant long-term wealth builder for individuals and can help meet critical financial goals such as retirement, the study notes. Currently, equity compensation makes up nearly a third (32%) of employees’ net worth on average. For Millennials, it makes up 43% of their net worth.
The survey did find some year-over-year declines in value, which Schwab notes was potentially the result of lower share price valuations for individual organizations and of participants exercising/selling their equity compensation. On average, employees are 58% vested in their equity compensation, down 7% from 2019. The average vested value of participants’ equity compensation is $75,483 (down from $97,711 in 2019) and the average total value of their equity compensation is $130,018 (down from $149,835 in 2019).
Logica Research conducted the survey on behalf of Schwab Stock Plan Services between July 26 and Aug. 6, 2020. Survey respondents worked for companies that offer equity compensation plans, are currently participating in an equity compensation plan and were 18-75 years old.
