Equity compensation: How to get employees to use it, like it and understand it

Workplace benefits play a crucial role in employee retention – while perks such as a gym discount or entertainment can be attractive, our research shows that most employees would prefer financial benefits such as a robust 401(k) offering or company stock plan, according to the Morgan Stanley at Work “State of the Workplace Financial Benefits Study.” This may be partly why equity compensation continues to grow in popularity, with three in four HR leaders (76%) reporting that their companies are offering some form of equity compensation – up four percentage points year-over-year, and 11% since 2021.

However, equity can be complex. Without proper support, what should be a driver of satisfaction can become a pain point for both employers and employees. New findings shed light on this disconnect: Our research shows that only 38% of employees say they are aware that their company offers equity compensation, and less than half (45%) of both employees and HR leaders say their company’s participant education program is very effective.

Here are three key questions to ask your equity provider to help you implement and adapt a plan that’s better able to meet your company’s current needs:

No. 1: Who is the plan for?

Who, what, when, where and why is an important starting point to drive conversations both internally with your compensation committee and externally with your providers. Discuss who will receive equity, understanding that the type of plan you choose can make a difference. Balance between organizational objectives, shareholder interests and employee expectations is key.

For example, if you’re looking to promote diversity, equity, and inclusion, a broad-based plan tied to payroll such as employee stock purchase plans (ESPPs) may be a good fit, as more employees will be able to participate. On the other hand, if your goal is to attract and retain top executives for specific timeframes or to hit certain targets, you may benefit from a more focused offering such as incentive stock options (ISOs) with longer vesting dates.

Adding another layer of complexity, each employee segment and level in the corporate ladder that engages with equity will have different financial needs. Ensuring that each participant has the support and guidance needed to understand how to make the most of their equity is crucial to the success of your program—remember, more than half (56%) of stock plan participants cite their equity benefits as a reason they continue to work for their company, according to the Morgan Stanley at Work “annual Stock Plan Participant Survey.”  Ask your provider if they have any resources or data that can support your compensation committee’s decisions regarding eligibility, timing, and structure.

No. 2: How can we leverage our plan to better support our business goals?

Equity compensation can influence the strategy, mission, and long-term health of your company, so you want to make sure your plan stays connected to your company’s growth metrics, shareholder mandates, and employee culture. Discussing your business goals with your equity provider can help identify additional opportunities to align your equity plan with company objectives.

Consider what stage of business your company is in – rapid growth, strategic building, transition – and your timeframe to hit certain goals. What equity type, vesting schedule, or liquidity event targets are good fits for your company’s current life stage? Also, consider your recruitment and retention goals – Morgan Stanley research shows that 71% of employees would consider a new role that better meets their workplace benefits needs. Do equity recipients understand what is required to achieve payout?

Once you clarify your company’s high-level goals and objectives, your equity provider can more appropriately advise on resources and tools to support you in pursuing them. There’s no magic formula, and it should be an ongoing conversation to help you maintain the right balance. For example, it may be beneficial to ask your platform provider how to lighten the lift for your administrative employees as they juggle tight margins, competing business goals, and full workloads. With more room on their plates, your HR executives could then focus on strategic solutions to help drive wider goals.

No. 3: What is working for employees and what isn’t?

Another piece of the puzzle is engagement: Your equity plan will have a much greater impact if employees use it, like it, and understand it. Yet our research shows that only 38% of employees say they understand how to maximize the financial benefits from their stock plan, and less than half (45%) know how to reach someone to ask questions about it.

A strong education program that combines flexible, self-guided content with access to financial professionals can help maximize engagement across your organization. Aim for a regular cadence of educational content throughout the year, avoiding busy periods such as new product launches, performance reviews or quarterly earnings. Consider hosting a session on tax planning ahead of the tax filing deadline—our research shows that only 38% of U.S. employees say they understand how taxes impact their stock plan benefit. Sharing a library of educational content through your intranet or app experience allows employees to choose their own adventure through a variety of content formats such as articles, on-demand videos, and virtual classes.

Note that executive-level participants may need more sophisticated guidance depending on their unique situation, and you can also add value to the participant experience by working with your benefits providers to make sure you’re able to point employees in the right direction for more support. For example, connecting employees with equity professionals through the platform provider can help them find answers or facilitate equity-related strategies such as 10b5-1 plans or lines of credit. And if employees are interested in learning how to fold their equity compensation more strategically into their overall finances or more complex wealth management concerns, consider offering them the option of connecting with a Financial Advisor through your workplace benefits.

Related: Equity compensation: Drive home the value of this valuable benefit during tax season

Both HR executives (95%) and employees (80%) overwhelmingly agree that having a benefit plan that includes equity compensation and stock ownership is the most effective way to motivate employees and keep them engaged. Whether it’s through education programs, executive support, or thoughtful plan design, there are many ways to boost employee participation in equity plans. At the end of the day, creating a pro-equity culture at your organization with education regularly in the spotlight can move the needle on engagement and support your overall business objectives.

Kate Winget is Chief Revenue Officer, Morgan Stanley at Work.