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Research highlights need for employee financial education and communication
Given a sluggish economy, growing cost constraints and equity market volatility, will employee equity plans remain effective and viable in the future? That question was addressed in a survey report, Employee Equity Plans: Do They Have a Future?, which studied the prevalence of three types of employee share plans at public companies in the U.S., U.K. and Western Europe: options, free/restricted shares and employee stock purchase plans (ESPPs).
WorldatWork and consultancies Performance and Reward Centre (PARC) and Hewitt New Bridge Street collaborated on the survey, conducted in the second quarter of 2009.
A majority of respondents indicated they had no plans to cut back on employee equity plans, which they still see as integral to their company's total rewards strategy—a tool to help motivate and retain employees. More than 70 percent of companies that are able to operate some type of employee equity plan chose to do so.
However, employees might need help seeing equity plans as a value-added benefit: Less than 10 percent of employers indicated that a majority of eligible employees were participating in ESPPs. In addition, at least 80 percent of respondents indicated that their stock options are "underwater" (the current share price is lower than the option price), but more than 80 percent of that group had taken no action to address the situation.
Among other key takeaways from the WorldatWork survey:
• Company size is important in predicting the presence of employee equity plans: They are most common among companies with 20,000 or more full-time employees.• Industry is more important than geography in predicting the presence of an employee equity plan: These are most common among technology firms and financial institutions and least prevalent in consumer goods, manufacturing and consumer services.• Substantive changes are not planned to pricing strategy relative to market in the next 24 months: In the U.S., most options will still be offered at market value while most ESPP shares will continue to be offered at a discount to market (discounts typically range from 5 to 15 percent below market price).• Most plans have eligibility restrictions: first by employee level, then by location.
• Company size is important in predicting the presence of employee equity plans: They are most common among companies with 20,000 or more full-time employees.
• Industry is more important than geography in predicting the presence of an employee equity plan: These are most common among technology firms and financial institutions and least prevalent in consumer goods, manufacturing and consumer services.
• Substantive changes are not planned to pricing strategy relative to market in the next 24 months: In the U.S., most options will still be offered at market value while most ESPP shares will continue to be offered at a discount to market (discounts typically range from 5 to 15 percent below market price).
• Most plans have eligibility restrictions: first by employee level, then by location.
“All signs indicate that stock equity plans will remain as an employee benefit especially at large companies,” says Ryan Johnson, vice president of research at WorldatWork. “To maximize an equity plan’s value, employees need help understanding the risks and benefits. It's no longer enough for companies to offer equity; they also need to give employees the know-how to empower them to make good decisions.”
“Our survey confirms the importance of equity plans as an important part of the organization’s total rewards package,” adds Don Lindner, senior practice leader at WorldatWork. “They are especially vital in terms of aligning employee interests and goals with the company’s.”
Another View of Equity Plans
A fall 2009 study by financial firm Charles Schwab found that despite stock market uncertainty, a majority of public U.S. companies are continuing to offer 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 rather than to attract recruits. But as companies offer more types of equity plans to a wider group of employees, the need for education about these awards becomes a challenge (see Companies Enhancing Stock Plan Offerings to Employees at All Levels).
Stephen Milleris an online editor/manager for SHRM.
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