More companies view stock plans as an important tool to motivate and reward workers at all levels. Despite stock market uncertainty, a majority of U.S companies say they are offering the same as or even more stock plan benefits to their employees than they did before the 2008 stock market drop, according to a study by financial firm Charles Schwab.
In fall 2009, Schwab commissioned a survey of 200 corporate stock plan decision-makers from companies around the U.S., across a broad range of industries. These decision-makers were asked about the role of stock plans in the workplace and their perceptions of stock plan features and benefits. A key finding: One in four respondents (25 percent) says their company intends to increase stock plan benefits in 2010, while 68 percent plan to maintain benefits at the current level.
These benefits are not just for senior-level employees:
• Half (50 percent) of participating companies offer performance shares to manager-level employees.
• Nearly half (48 percent) offer manager-level employees stock options.
• One-third (34 percent) award restricted stock to managers.
• More than a quarter offer performance shares (26 percent) and/or stock options (27 percent) to employees below the manager level.
• 17 percent award restricted stock to employees below the manager level.
Plans are targeted more toward existing employees than recruits. The most commonly cited reasons for offering these benefits: motivating employees to support the success of their company (65 percent) and giving employees a sense of ownership in the company (58 percent). Just 12 percent saw these benefits as a key recruiting tool.
Across employee groups, the most common stock plan offerings are:
• Stock options (granted by 71 percent of responding companies)—options to purchase company stock at a specified price.
• Restricted stock (64 percent of responding companies)—stock issued to employees that typically vests over a period of time.
• Performance shares (51 percent of responding companies)—stock issued to employees based on corporate performance.
Yet the balance might be shifting to performance-based rewards, according to the survey data. Nearly eight in 10 (77 percent) of respondents are granting more or the same number of performance shares, while 69 percent are issuing more or the same number of restricted stock shares and 64 percent are distributing more or the same number of stock options.
“Our survey shows that companies are continuing to employ and expand different types of stock plan programs to reward employees across the company, largely as a motivational tool to build loyalty among existing employees,” said Larry Bohrer, Charles Schwab Stock Plan Services vice president.
As companies offer more types of stock plan awards to a wider group of employees, the need for more comprehensive stock plan education appears greater than ever. Using an academic scale to grade the level of understanding about the company stock plan, 36 percent of respondents gave their non-executive employees a “C” grade. Executive-level employees received higher marks from survey respondents, but still only 55 percent of respondents gave their executives an “A” for their level of understanding of company stock plans.
As companies offer more types of equity plans to a
wider group of employees, the need for education
about these awards becomes a challenge.
Schwab found that nearly half of survey respondents (48 percent) consider educating employees about the features and benefits of their stock plan a “significant challenge.” But they are poised to take on the task: 78 percent say that educating employees on the stock plan value and benefits will be an important focus for their company during the next two years.
These employers have already begun to deploy a variety of educational activities to increase employee knowledge of the benefits and workings of their company stock plan, such as:
• Including information in new-hire benefits information packets (64 percent).
• Providing information on the employee web site (63 percent).
• Including stock plan information details in discussions of overall employee benefits packages (59 percent).
• Scheduling one-on-one employee consultations with the stock plan provider (25 percent).
“Because equity compensation plans are more complex than traditional compensation programs, they require a more robust educational effort,” said Bohrer. “Employers who take steps to increase understanding of these plans across their employee base will be more likely to reap the rewards of a more motivated and engaged workforce.”
Employee Stock Purchase Plans (ESPPs)
To further increase employee ownership, employers are also aiming to boost participation in employee stock purchase plans (ESPPs), which often allow employees to purchase company stock at a discounted price:
• 65 percent of company respondents offer an ESPP to their employees.
• 86 percent of those companies make their ESPP available to manager-level workers, and 81 percent offer an ESPP to other low-level employees.
Despite market volatility, employees appear to recognize the intrinsic value of the ESPP. More than half of survey respondents (56 percent) say ESPP participation has increased or stayed the same since the market downturn, and 30 percent of employers are making more efforts to increase employee participation in the ESPP.
“The ESPP can be an effective way to reward employees and create an ownership culture,” said Bohrer. “Our survey shows that a significant percent of employers are looking to increase participation in ESPP plans as an important piece of their overall benefits package for employees.”
Stephen Miller is an online editor/manager for SHRM.
CEO Stock Ownership Value Plunged in 2008, Study Finds, SHRM Online Compensation Discipline, November 2009
SHRM Online Compensation Discipline
SHRM Salary Survey Directory
SHRM Compensation Data Center