Equity Compensation Increasingly Used for Financial Wellness and Retirement

Equity compensation programs are increasingly viewed as part of participants’ overall financial strategies, according to research from Fidelity Investments.

One-quarter of the 1,448 company stock plan participants surveyed indicated they would tap their retirement account if they needed cash (the same percentage as in Fidelity’s 2016 survey); however, 62% said they would sell company stock if they needed cash—an increase from 58% in 2016.

The 2018 survey found that when participants sold their company stock, 28% used the proceeds for paying bills or debt. Thirteen percent reinvested the proceeds in stocks/mutual funds, and 9% reinvested them in a retirement savings account. Nine percent each also reported they used proceeds as emergency savings and for college expenses, savings or student loan payments.

When asked how they plan to use the proceeds when they sell company stock, respondents indicated:

• Reinvest in retirement account – 43% (This is the highest percentage ever recorded in Fidelity’s survey);
• Reinvest in stocks/mutual funds – 13%;
• Pay off bills/debt – 10%; and
• Use for rainy day/emergency – 9%.

According to the survey, more than two-thirds of respondents (67%) consider company stock as part of their long-term investment plan.

Although 31% said their company stock will be important in retirement but they will rely on other savings first, 44% reported that their company stock will provide a “cushion” in retirement. Six percent said their company stock will be their primary source of retirement income (down from 7% in 2016).

“The results of this year’s survey really underscore the fact that the role of company stock continues to evolve and increase in importance in the eyes of employees, as well as play an increasingly important role in employees’ overall financial wellness,” says Emily Cervino, head of thought leadership, stock plan services at Fidelity Investments.