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Retirement savings is not a monolith. Aside from the conventional 401(k)s, defined benefit or IRA savings plans, employers will often offer perks like equity compensation. Equity compensation is a non-cash payment that gives employees a stake in the company, often in the form of stock options or shares.
A new survey from Charles Schwab says that equity compensation is a major part of employee retirement plans and financial wellbeing. Three-quarters (76%) say equity compensation is very important, and nearly half consider it a “must-have” benefit when evaluating a new job. Half view equity compensation as a critical tool to help achieve retirement goals, and many say it will help them build/increase wealth (38%), learn more about investing (37%), alleviate financial stress (32%), and boost employee morale (32%). Participants say company stock makes up about one-third of their overall investment portfolios on average.
“Equity compensation is both a powerful benefit and a meaningful motivator,” said Andrew Salesky, Managing Director, Schwab Stock Plan Services. “Employers are always seeking to attract top talent. Through a strong equity program, they can demonstrate a commitment to employees’ financial security and also build stronger alignment. Our study shows that when participants understand and strategically use their equity, it can be transformative for their financial wellbeing.”
The survey also shows that Nearly 3 in 4 stock plan participants (72%) feel very likely to reach their retirement savings goals and 44% say using equity compensation to help finance retirement best describes how they plan to use this benefit. They also intend to use it to support other strategic priorities like financing their own education or children’s education (17%), paying off debt (11%), and buying a home (8%).
One in three participants report selling or exercising equity awards to pay for immediate financial needs (32%), diversify their portfolio (29%), or accomplish routine planning goals (29%). Those that haven’t sold say they are waiting for more favourable market conditions and to be fully vested. “Equity compensation plays a dual role — it provides the potential for long-term retirement security while also offering flexibility to address shorter-term financial needs,” said Salesky. “This versatility is part of what makes equity such a valuable workplace benefit, and why participants, supported by their employers, should ensure they understand how to maximize its potential.”
When adding the guidance of a professional, the survey shows that plan participants’ confidence levels go up. Participants with an advisor are more likely to know how to exercise or sell their equity, assess the dollar value, and understand the tax implications. Additionally, half (51%) of those with an advisor expect to use equity compensation primarily to help finance retirement, compared to 39% of those without an advisor.
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