Equity Compensation Plays a Role in Employee Retirement Strategies

If employees are offered an equity compensation plan and able to participate, it's a way for them to have a mix of taxed and tax-deferred savings.

Sixty percent of workers who have an equity compensation plan intend to use the money to help fund retirement, according to a survey of 1,000 equity compensation plan participants who currently receive incentive stock options or restricted stock awards and/or participate in employee stock purchase plans (ESPPs). Their average vested balance is $97,711 and the average total value of their equity compensation is $149,835, according to Schwab Stock Plan Services.

Retirement savings is, by far, the most common goal for those building equity compensation wealth.

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Amy Reback, vice president of Schwab Stock Plan Services, tells PLANSPONSOR that having a diversified portfolio of both taxed and tax-deferred savings is a good strategy: “People who enter retirement with the appropriate amount of taxed and tax-deferred savings are more likely to have an enjoyable retirement. If you only have tax-deferred savings, you are still taxed when you draw down those assets, and you could have a pretty large tax bill. It could be as much as 20% or 25% of your assets.”

Schwab’s survey also found that among those with an equity compensation plan, it makes up 27% of their net worth on average. Sixty-eight percent also hold company stock outside of their equity compensation plan, primarily in their 401(k) plan. Sixty-five percent are very or extremely confident their equity compensation plan will help them meet their financial goals, and 28% are somewhat confident.

Equity compensation plans are not just for the highly compensated, says Aaron Shapiro, founder and CEO of Carver Edison. Options and restricted stock units are generally granted to highly compensated employees, but employee stock ownership plans and employee stock purchase plans are designed for broad-based employees, he says.

“The availability of equity compensation plans is out there, but the challenge is that most people who are eligible to participate in them cannot afford to see their paychecks get smaller,” Shapiro says. 

Workers want help from their employer to understand their equity compensation program, according to the Schwab survey. The specific areas they want help with are planning for retirement (68%), meeting their financial goals (55%), developing a financial plan (52%) and balancing equity compensation with other investments (51%).

A survey by E*Trade found that when it comes to their company’s stock plan benefits, only 71% of employees said they understand how to access their account. Only 59% understand how their vesting schedule works. Just over half, 53%, said they understand the benefit, and only 46% know how to find information about their stock plan benefit.

SURVEY SAYS Workplace Holiday Parties

PLANSPONSOR NewsDash readers share their opinions about holiday and other options.

Last week, I asked NewsDash readers, “What do you think of workplace holiday parties?” I also asked, “Is there something else you’d rather your employer do instead?”

Nearly six in 10 responding (57.9%) readers said their company hosts a holiday party every year, while 42.1% said their company does not.

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More than one-third indicated they feel holiday parties are a somewhat of a reward and morale booster, while 10.5% said they definitely are, and 21% said they are not. Twenty-nine percent indicated company holiday parties are a morale booster but not a reward, and 2.6% said they are a reward but not a morale booster.

Asked what they would rather their employer do for the holidays, other than a holiday party, 43.2% chose “give employees bonuses,” while 32.4% selected “give an extra day off.” Only 5.4% said give employees gifts, and 8.1% said they’d rather their company host an employee gift exchange. Nearly two in 10 (18.9%) chose “bring in food to the office,” and 13.5% indicated there’s nothing they’d rather their employer do. Several responding readers who chose “other” said companies should offer a budget for separate departments or teams to do their own activity. Donate funds to charity and “almost anything” were also listed.

In verbatim comments, a few responding readers shared what their company does for its holiday party; several expressed how much they enjoy it. Others said the socializing is awkward for them, or warned about how certain behavior can get out of hand. There’s no Editor’s Choice this week.

A big thank you to all who participated in our survey!

Verbatim

We’re a large company but still have a holiday party at a large hotel, with a program where significant promotions are announced and there’s a buffet dinner. We also receive a gift from the president & CEO. It’s great!

It is always difficult to reach all employees for a specific holiday event when the organization is open 24/7. Someone will always feel left out.

Just give me the money instead of the forced socializing

No holiday party where I work now. I’m just as happy without it. I feel that most employees would prefer some additional time off—even an afternoon—to help them find time for all the things that need to be done during this busy time of year. Also cheaper for the employer and avoids liability issues associated with excessive alcohol consumption.

Just be careful you don’t do something stupid that could damage your career.

They are dull beyond words, because people are “networking” and brown nosing rather than relaxing and having a good time. Need to keep up their personal brands. 🙂

Yawn.

I’m an introvert who would rather have dentistry without Novocaine than go to a company-sponsored holiday party.

We have offices all over the U.S., so one holiday party is not practical. Each office can do as they wish, and ours generally does a lunch on a Friday and take the rest of the day off.

The larger the party, the more political it becomes between cliques, power-plays, and similar social constructs. Having smaller (department-sized or smaller) parties are far more effective and actually give co-workers a better chance to gel outside of the office.

No. Just say “No.”

I have attended lavish and expensive parties and the cheapest (sharing a ham). And extra day or even a couple of hours off would be most appreciated.

Should be used to celebrate the diversity of the holiday season and not be limited to Christmas celebrations.

We use to have a holiday party, but as we grew it became too difficult and the stories of the inappropriate behavior at said parties are the reasons we don’t have one anymore. Now each department does their own thing, but it would be nice if the company actually gave us a budget to fund it, instead of everyone chipping in.

Holiday parties are a great time to socialize with co-workers outside of work. For large organizations, it is also an opportunity to get to know employees who you do not work directly with. Lastly, it is nice to get to know the spouses too. We look forward to our holiday party every year.

Our holiday party comes at the end of a busy season. Everyone is ready to eat well, have a few drinks, dance and blow off some steam! It always feels like a great celebration.

While it is an extremely nice gesture for the company to provide a holiday party (they could just as easily eliminate it and save several thousand dollars), it is during the week and employees only attend and can cause more stress than necessary. I guess it is all in how you view it.

 

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.

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