Equity compensation in a pandemic world

COVID-19 has impacted every company. Whether it is a direct impact on short or even long-term revenues or disruption to day-to-day operations, the pandemic's reach is vast. Most businesses have been forced to adapt in some way. For many, it has been a change in where or how they get work done. For some, it is a complete reimagining of their value proposition to meet wholly new customer needs.

At the center of this period of disruption, and inseparable from your company's ability to navigate it successfully, are your employees.

Strategic talent management is not new, especially in the knowledge economy. However, it comes into greater focus in challenging times. Companies that can rise to the challenge — effectively communicating with their employees and motivating, rewarding, and retaining them — can competitively position themselves not just for this moment, but for the long-term.

Read more: Employers are focusing on engagement strategies as COVID continues

One way for companies to do this is via equity compensation. According to new research from Schwab Stock Plan Services, equity compensation plays an important role in the employer-employee relationship. More than three-quarters of survey respondents say that equity compensation is a desirable benefit. An increasing number consider it the main reason or one of the main reasons they took their current job (37%, up from 28% in 2019). Of note, Millennials are the most likely generation to identify equity compensation as a significant factor in choosing their current employer (53%).

Undeniably, employers who offer equity compensation beyond the C-Suite as part of their overall employee value proposition differentiate themselves from those who only provide health and retirement benefits. Offering equity compensation gives employees a stake in the company's future success and can help employers to attract and retain the best talent. So, it's not surprising that more firms are offering stock plans, and therefore more employees are basing important financial planning goals around them.

Read more: Strategies to ensure your equity plans are “shock-proof”

Simply offering a plan is not enough, though. More than ever, employers need to actively design and manage their plans prudently to match the current environment. To help employees make the best financial decisions possible, employers can provide access to the tools, advice, and guidance needed to make those important financial planning decisions and fully maximize this benefit.

Our research underscores some of the areas where stock plan participants can benefit from help right now.

Advice and planning to help manage short-term needs: Last year introduced an unprecedented level of uncertainty, forcing participant investors to reprioritize their long- and short-term financial needs. Moreover, COVID-19 is having a direct impact on plan participants' decisions. The survey finds that of those who recently exercised or sold equity compensation, two-thirds (67%) say they were influenced by the pandemic, including market volatility and the economic downturn. There was also a slight uptick overall this year in those turning to their equity compensation to help meet immediate financial needs, like paying off debt and short-term emergencies.

A financial plan can help people make sound decisions today that won't upend their ability to meet their long-term goals. What's more, employees' confidence about making the right financial decisions increases from 73% to 83% when they have help from a financial professional.

Managing risk and avoiding concentrated stock positions: According to the data, equity compensation makes up nearly a third of employees' net worth on average, and for Millennials, it makes up 43% of their net worth.

This means that for many participant investors, the company's success impacts both their job security and their portfolio. Your company's ability to withstand and even prosper in the current challenging environment affects them on dual fronts. So, it is more important than ever that employees have the resources to look carefully at their overall portfolio diversification and risk profile, and the advice to help them make changes if necessary.

Employees can sometimes have blind spots or biases when it comes to how your company will perform and how this will impact stock prices and their portfolios' value. We know that company performance and stock performance don't always go hand-in-hand. Sometimes a company that is performing well can still have a low stock price, and vice versa.

You can help by encouraging your employees to think about their stock options in the context of their own financial situation — not the company's financial situation.

Continuing to build toward long-term goals: Despite the current environment, half of all participants are still planning to use their equity compensation for retirement, and two in five have exercised or sold at least some of their equity compensation during their career, with close to a third doing so as part of their long-term financial plans.

Employees in the study are overwhelmingly clear that they want more education from their employers and a majority aren't sure how different types of equity compensation fit into their portfolio. The top three areas employees currently need the most help with are retirement planning, investing, and taxes.

As part of the broader employer-employee relationship, how you manage your plan matters a lot, not just to your employees' long-term financial security, but also for the long-term talent strategy supporting your business. So, take a closer look now at how employees are using this benefit so you can understand how to optimize your plan as part of a competitive, differentiated talent strategy in the current environment.