A survey from UBS Wealth Management Americas finds employees become increasingly engaged with their equity awards within three years of retirement, likely because they will be used to fund participants’ lives after work. Thirty-three percent of those nearing retirement say that they have become more engaged with their company stock, while only 10% feel that they have become less engaged. Other research has found equity compensation plans are earmarked for eventual retirement savings.
However, the latest “Participant Voice” survey from UBS found 53% of equity compensation plan participants are more involved with managing their investments now compared to before the financial crisis, and 57% of participants are more skeptical about financial markets and long-term investing today compared to before the financial crisis. Regarding the long-term investment horizon, before the financial crisis 44% of participants considered it to be 10 years or more, today only 30% do. Another indicator of this shift, today only 30% of participants pick an investment and stick with it for the entire duration, down from 45% before the financial crisis.
Eighteen percent of participants view their equity award merely as a lottery ticket and seven in ten participants do not create or follow a long-term plan for managing company stock holdings. Participants across different industries tend to place different amounts of value on equity compensation. The technology sector participants have the lowest UBS Equity Award Value Index scores at 44. While they feel optimistic about the long-term potential of their industry, they are less certain about their own company’s long-term prospects. Participants who work in health care and financial services have an index score of 52, while manufacturing scored a 51.
Overall, only 39% of participants place considerable or high value on their equity award, while one in five participants (21%) "perceives virtually no value." Two in five (40%) place minimal or moderate value in the equity awards they receive.
“Participant Voice” identified three core actions companies can take to involve employees and drive engagement in equity compensation plans. Culture has a strong impact on how employees view both their company’s future and their own equity plans, UBS says. Participants who believe their company has a strong culture also believe in its growth potential: 91% of participants who rate their company’s culture as “excellent” described the long-term future of their company as “excellent” or “very good.” As a result, participants who are part of a strong company culture place significantly more value on their equity awards. When a culture rating improves from “poor” to “excellent,” the UBS Equity Award Value Index score sees a corresponding increase from 34 to 58. Similarly, from a long-term company outlook of “very pessimistic” to “very optimistic,” the UBS Equity Award Value Index score jumps from 34 to 56. Fostering a strong company culture leads to greater perceived value of equity awards.
When a company’s equity plan is well understood, the equity value score is 55, as opposed to 37 when the plan is not understood at all. According to UBS, simplicity is key—the more straightforward the plan, the more easily it is understood. “Participant Voice” found participants view employee stock purchase plans (ESPPs) as the least complex plan, while performance share plans are considered the most complex.
Communications around key dates are particularly important factors for driving equity award value perceptions. Accordingly, 78% of those “extremely satisfied” with communications have a complete or near complete grasp of their company’s equity plan. When satisfaction with communications about key dates shifts from “not satisfied at all” to “extremely satisfied,” the equity value index score leaps from 35 to 63.
Education and personalized advice have a strong impact on how much participants value their equity awards, UBS found. As satisfaction with education improves, the Equity Award Value Index increases from 36 to 65. The most effective education methods are one-on-one conversations, which is the highest contributor to participants’ satisfaction with their equity plan education according to 75% of respondents. For global participants, tailored communications help improve understanding of equity plans and the value they place on equity awards: global participants who receive tailored communications scored a 51 on the equity plan index versus a score of 45 for those who receive a generic version.
Similarly, providing personalized advice—contextualizing equity compensation as part of a participant’s overall financial life—causes participants to place more value on their equity awards. To illustrate, participants who view their equity compensation as part of a long-term plan have a significantly higher index score than participants who do not (61 vs. 36).
“Personalized advice is the key to effectively communicating the benefits of the equity award and leads to greater plan engagement. Participant Voice found those participants who place a higher value on their equity awards feel better about their financial situation and more confident about achieving their goals,” says Michael Barry, head of UBS Equity Plan Advisory Services.
More information about the UBS “Participant Voice” survey is here.