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. Follow Stock
Plan Services on LinkedIn for additional information.
About Charles Schwab
At Charles Schwab we believe in the power of investing to help
individuals create a better tomorrow. We have a history of
challenging the status quo in our industry, innovating in ways that
benefit investors and the advisors and employers who serve them,
and championing our clients’ goals with passion and integrity.
More information is available at www.aboutschwab.com. Follow us
on Twitter, Facebook, YouTube and LinkedIn.
Disclosures
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.
Through its operating subsidiaries, The Charles Schwab
Corporation (NYSE: SCHW) provides a full range of securities
brokerage, banking, money management and financial advisory
services to individual investors and independent investment
advisors. Its broker-dealer subsidiary, Charles Schwab & Co.,
Inc. (member SIPC, www.sipc.org), and affiliates offer a complete
range of investment services and products including an extensive
selection of mutual funds; financial planning and investment
advice; retirement plan and equity compensation plan services;
compliance and trade monitoring solutions; referrals to independent
fee-based investment advisors; and custodial, operational and
trading support for independent, fee-based investment advisors
through Schwab Advisor Services. Its banking subsidiary, Charles
Schwab Bank (member FDIC and an Equal Housing Lender), provides
banking and lending services and products. More information is
available at www.schwab.com and www.aboutschwab.com.
©2018 Charles Schwab & Co., Inc. All rights reserved. Member
SIPC
(1118-8ARF)
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Charles SchwabMike Peterson,
330-908-4334mike.peterson@schwab.comorIntermarket
CommunicationsMike Gelormino,
212-754-5479mgelormino@intermarket.com
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