SAN FRANCISCO--(BUSINESS WIRE)--A new survey from Schwab Stock Plan Services reveals that equity
compensation accounts for a significant portion of participants’ net
worth, with many employees’ portfolios overweighted in company stock
even though they state they regularly rebalance their investment
accounts.
According to the nationwide 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), equity
compensation accounts on average for nearly 30 percent of employees’ net
worth. Millennial employees have a greater share of their net worth in
equity compensation than do their Gen X and Boomer counterparts (42%,
compared to 24% and 19%, respectively). Almost three-quarters (73%) of
employees surveyed also own company stock outside of their equity
compensation plan, most (44%) in their workplace retirement plans.
Maintaining a high proportion of company stock may be a conscious
choice, as 81 percent of employees say either they have rebalanced their
investment accounts in the past twelve months (55%) or their account
automatically rebalances itself (26%), and approximately two-thirds of
them say they take their equity compensation or ESPP into account when
rebalancing.
“For some investors, too much company stock can be too much of a good
thing,” says Marc McDonough, senior vice president, Schwab Workplace
Financial Solutions. Schwab typically recommends having no more than 10
to 20 percent of an investment portfolio in company stock, although that
figure can vary depending on an individual’s financial situation.
“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,” said McDonough. “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,” he
added.
Making Better Decisions with Professional Guidance
Most respondents recognize the value of financial advice, but the survey
reveals contradictions between that recognition and their reported
behavior. Three-quarters say they would be 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, and yet
employees are more likely to get advice on how to manage their equity
compensation through independent research (37%) than from interacting
with a financial advisor (24%) or asking their employer (16%).
Workplace financial wellness programs are another source of guidance
that can help employees understand and effectively manage financial
complexities, offering direction in areas like equity compensation,
budgeting and debt. According to the survey, 61 percent of those who are
offered such a program take advantage of it. Those who participate say
their program is helpful in a number of areas including planning for
retirement (90%), using equity compensation to reach financial goals
(84%), investing skills (83%), balancing equity compensation with other
investments (82%), and developing a financial plan (82%).
The survey suggests that employees who are offered a financial wellness
program but elect not to use it might not fully understand the breadth
of services this type of program can provide. Their top reasons for not
availing themselves of this resource are believing they don’t need
advice (40%) and focusing on more immediate financial issues, like debt
(27%).
“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,” McDonough continued. “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. Plus, people with a financial plan tend to exhibit more
positive saving and investing behaviors overall.”
Equity Compensation is Good for Employees and Employers Alike
Beyond just creating financial incentives for employees, equity
compensation plans can have a significant impact on attracting and
retaining talent. Close to 40 percent of respondents – including 60
percent of Millennials – said equity compensation was the top reason or
one of the main reasons they took their job. Moreover, three-quarters of
respondents believe that equity compensation is a very important or even
an essential benefit.
Respondents cited a number of reasons why they value their equity
compensation, including:
-
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%); and
-
They believe it helps alleviate some of their financial stress (38%).
“Equity compensation plays a vital role in keeping workers engaged and
committed to the success of their companies, which is good news for
employers who choose to offer these benefits,” McDonough said.
About the Survey
This online survey of equity compensation participants was conducted by
Logica Research (formerly Koski Research) for Schwab
Stock Plan Services. Logica is neither affiliated with, nor employed
by, Schwab Stock Plan Services. The survey is based on 1,000 interviews
and has a 3 percent margin of error at the 95 percent confidence level.
Survey respondents worked for companies that offer equity compensation
plans, are currently participating in an equity compensation plan and
were 25-70 years old. The average total value of respondents’ equity
compensation was $98,908. Survey respondents were not asked to indicate
whether their employer has accounts with Schwab Stock Plan Services. All
data is self-reported by study participants and is not verified or
validated. Respondents participated in the study between July 12 and
July 20, 2018. Detailed results can be found here.
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Brokerage Products: Not FDIC-Insured · No Bank Guarantee · May Lose
Value
Schwab Stock Plan Services provides equity compensation plan services
and other financial services to corporations and employees through
Charles Schwab & Co., Inc. (“Schwab”). Schwab, a registered
broker-dealer, offers brokerage and custody services to its customers.
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