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Advisors’ Counsel Needed in Employee Stock Plan Decisions: Schwab

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While more than one-third of employees (36%) who participate in equity compensation plans say access to such a perk was a primary reason for taking their job, most are not tapping into the plans’ wealth-building potential and say they’d like help from a financial advisor in deciding how to do so, according to a just-released survey by Schwab Stock Plan Services.

“Tens of millions of Americans participate in equity compensation programs and most recognize their importance, but many are unsure of how to maximize their value,” said Marc McDonough, senior vice president, Schwab Investor Services, in releasing the report. “When managed correctly, equity compensation can play a meaningful role in building wealth.”

The nationwide survey of 1,000 equity compensation plan participants “made it clear that employees would benefit from more help in understanding the role this benefit can play in their long-term financial plan,” McDonough said.

Of the plan participants who receive incentive stock options, restricted stock awards and/or participate in employee stock purchase plans (ESPPs), just 24% have exercised employee stock options or sold shares that are part of their equity compensation, the survey found.

Fear of making a mistake is a concern for nearly half (48%), the survey said.

Among those who have never exercised or sold their equity compensation or ESPP, 34% admit to being worried about selling under the wrong market conditions and 34% say they are afraid of potential tax implications of making a wrong decision, according to the survey.

Millennials are the most confident in their ability to make the “right decisions” (58%), versus 44% of Gen Xers and 39% of boomers, according to the survey.

Meanwhile, 80% of all respondents said they would be much more confident with the help of a financial advisor.

“Employees clearly place a high value on these programs, but they are also asking for more help,” McDonough said. “Delivering that help is the next best step employers can take to further increase the effectiveness of their equity compensation programs.”

Respondents said they’d like advice on the tax implications of their decisions (50%), using the benefit to help prepare for retirement (44%) and knowing when to exercise or sell their equity awards (35%). 

The survey found that employees utilize their benefits in multiple ways, with tapping such plans for needed cash (35%), to make a large purchase (28%) or help prepare for retirement (11%).

The average total value of participants’ equity compensation is $72,245, and approximately two-thirds (63%) of employees are fully vested, the survey found.

Approximately three-quarters (76%) of respondents consider equity compensation part of their long-term financial plan, and most say their equity compensation helps them “feel less stressed about their finances” (76%) and more prepared for retirement (63%).

Boomers (84%) and Gen Xers (81%) said they are most likely to consider equity compensation as part of their long-term plan, compared with 31% of millennials who expect to use their equity compensation in the short term.

The top reasons why employees say equity compensation is an essential or very important benefit are: 

  • They believe it will help them to significantly build their wealth (55%);  

  • It allows them to participate in the growth of the company for which they work (52%); and  

  • It provides them with greater control over their finances (44%). 


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