With companies granting over $110 billion in equity each year to employees, the stakes are very high for employers to demonstrate a strong return on investment from their equity compensation plans. And yet, there appears to be a disconnect in how these companies and their employees perceive equity awards.
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In order to better understand the root of this inconsistency and find ways to close the gap, UBS created the Equity Award Value Index, which measures the value that participants place on their equity awards on a scale of 0-100. (The higher the index score, the more value a participant places on the equity awards.) In its survey, UBS uncovered that 18% of participants view their equity awards merely as a lottery ticket, while 70% do not create or follow a long-term plan for managing company stock holdings.
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UBS has identified three core actions employers can take to drive employee engagement and positively influence their perception of equity awards.
It starts with culture
A strong culture can be critical to improving the perceptions around the value of equity awards. Participants who feel their company has a strong culture place much more value on their equity awards than those who do not (index score of 58 vs. 34). Satisfaction with corporate culture also directly correlates to their view of a companys future 91% of participants who feel their company has an excellent culture have an optimistic view for its future. Fostering a strong company culture leads to greater perceived value of equity awards.
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Engage with simplicity
Employees often lack an appreciation for equity awards because they do not fully understand them. Equity plans can be complex, communications around them can be confusing and/or employees can be disenchanted with the markets and not engaged. Providing the right information in the right way is critical: 64% of participants understand their equity plan when they receive information about it, compared to those who do not receive any materials at all. Furthermore, the more straightforward the plan, the more easily it is understood, and the higher the index score. The UBS research found that participants view employee stock purchase plans as the least complex plan, while performance share plans are considered the most complex.
Personalized advice and education
Education and personalized advice have a strong impact on how much employees value their equity awards. As satisfaction with education improves, the Equity Award Value Index score increases from 36 to 65. According to 75% of respondents, the most effective education method is through one-on-one conversations.
Tailoring advice helps improve perceptions of equity awards. Participants place much higher value on their equity awards when they understand how the awards fit within the context of their overall financial picture, and they feel even more confident after receiving personalized advice on the subject (index score improves from 45 to 58).
Personalized advice is particularly important to those within three years of retirement. This group instinctively knows that 401(k) savings and Social Security may not be enough to finance both lifestyle and potential health care expenses. They want to be prepared for the future, and properly structured and managed equity plans can help ensure a successful retirement.
Equity awards are a benefit that can be a win-win for employers and employees. Improving engagement and perception through a strong culture, simple straightforward plan design and delivering personalized advice maximizes engagement and understanding.
Michael Barry is head of UBS Equity Plan Advisory Services, a division of UBS Wealth Management Americas.
