Equity Compensation Trends

I wanted to share some trends in the world of equity compensation. And just as a quick point of reference, equity compensation didn’t really become a thing until after WW2. Before then the focus was on salary. As companies started to become larger and more of them publicly traded, then stock options started appearing.

These findings are from last year’s trends in equity compensation study from Charles Schwab. They have not yet updated them for 2021. Also, the survey was done with 1,000 respondents.

First off, there are a myriad of reasons why people sell their equity compensation. Just under half of all holders of equity compensation have sold holdings at some point in their careers. Reasons for selling positions last year included regularly selling, wanting to diversify their portfolio, and wanting to make a large purchase.

Now, there are a couple of Covid-related stats I wanted to share. First, 2/3 of respondents said Covid impacted their decisions to sell, or not sell too. Things like volatility and market conditions factored into this decision. Something I found interesting was the drop in the percentage of respondents who sold because they thought market conditions were favorable. Actually, I guess this answer could be interpreted in several different ways. Maybe some people sold because the market dropped. While others may have not sold because they wanted to wait for the market recovery. Unfortunately, the study does not get into those types of granular details.

When we look at selling by age groups, Millennials sold at a higher percentage than older employees. This was both in situations where there was financial stress and also just due to Covid concerns.

One out of every five participants said they need help balancing equity compensation with their overall investments. Hint – that is what I do.

Here is one of my favorite data points from this study. I’ve referenced it in other places too. 85% of employees would like more education from their employers on equity compensation. That is part of the reason I started this podcast. Seeing firsthand from clients the need for clearer understanding and education on their equity compensation.

When you start digging down into the various types of equity compensation, most employees have no idea how these types fit into their overall investment portfolio. Types of equity compensation included ESPP, RSUs, Restricted Stock, and Non-Qualified Stock Options. 32% of the respondents said they knew how their ESPP shares fit in. This was the highest as most were in the low 20s.

Here is where the behavioral finance part of my brain starts to wonder. They also asked how many people feel confident about the decisions they are making with their equity compensation. 70% said they were confident. So, 70% feel confident they are making the right decisions, but only 1 out of 5 say they know how their equity compensation fits into their overall investment portfolio and nearly 9 out of 10 say they want more education. Something just doesn’t match up here.

Here is your not shocking statistic. Over ¾ of respondents said they consider equity compensation to be an essential or very important benefit. The top reasons were it helps them build personal wealth, allows them to participate in growth of the employer, and the company’s success will lead to their personal success.

I have also mentioned this one before. The trend is more new employees want equity compensation. 1/3 said this is a main reason they took a position. And half of Millennials said it was the main reason or primary reason why they took a job. This will be interesting as GenZ moves into the workforce. I’ve already hammered into my older son’s head to try and get equity compensation.

This next factoid was kind of shocking to me. 90% of respondents said they would choose to work for a publicly traded company with an existing equity compensation program if they had a choice. I knew this number would be high, but I didn’t think it would be 90%.

Almost 9 out of 10 say it’s important for them to be able to choose what type of equity compensation is available to them. Looks like employers will continue to need to be flexible.

On average, 1/3 of respondents’ net worth is made up of equity compensation. Not surprisingly, this number is higher as the employees get younger. I’m sure there are various reasons why, including younger people requesting it more to older employees building up wealth outside of equity compensation.

Half of participants said they plan to use equity compensation for retirement. Other uses outside of retirement include paying off debt, education for kids, short term expenses and home purchases.

I think this is a good place to stop. Hopefully you found it interesting. I know I did, but I am a nerd who caters to clients with equity compensation.

Actually, one last comment. Remember, 85% of participants want more education around equity compensation. Don’t forget my podcast, The Equity Compensation Guidebook, which you can find via my website. And feel free to encourage people to sign up for my email.