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Portfolio > Alternative Investments > Private Equity

Schwab: Many Workers Hold Too Much Company Stock

By Michael S. Fischer

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Equity compensation plans not only create financial incentives for employees but can also be a significant factor in attracting and retaining talent.

A new survey from Schwab Stock Plan Services shows that equity compensation accounts for a large portion of respondents’ net worth, with many employee portfolios overweighted in company stock — even though the vast majority say their investment accounts are regularly rebalanced.

Logica Research (formerly Koski Research) conducted an online survey in July of 1,000 employees of companies that offer equity compensation plans. These were currently participating in such a plan and were between 25 and 70 years old. Their average total value of equity compensation was $98,908. Survey participants were not asked whether their employer had accounts with Schwab Stock Plan Services.

Some 40% of respondents — and 60% of millennials — said equity compensation was a chief reason they took their job, and three-quarters said it was a very important or even an essential benefit.

They reasoned that equity compensation allowed them to participate in their company’s growth, thought it would help them amass wealth, said it meant that the success of their company would play an important role in their own success and expected it to ease some of their financial stress.

Equity compensation accounted for nearly 30% of the net worth of survey participants who received stock options or restricted stock awards and/or participated in employee stock purchase plans.

For millennial workers, equity compensation made up 42% of net worth, compared with 24% for Gen X employees and 19% for their boomer counterparts. Seventy-three percent of employees surveyed also owned company stock outside of their equity compensation plan, 44% in their workplace retirement plans.

Maintaining a high proportion of company stock appeared to be intentional. The survey found that 81% of employees said either that they had rebalanced their investment accounts in the past 12 months or that their account automatically rebalanced itself. Two-thirds said they took their equity compensation or ESPP into account when rebalancing.

“For some investors, too much company stock can be too much of a good thing,” Marc McDonough, senior vice president at Schwab Workplace Financial Solutions, said in a statement.

Schwab said it typically recommends having no more than 10% to 20% of an investment portfolio in company stock, although that figure can vary depending on an individual’s financial situation.

“It’s clear that employees value their equity compensation as a major driver of wealth, but they must also appreciate how important it is to diversify,” McDonough said. “With so many variables, we encourage employees to ask for help to make sure they are thoughtfully integrating their equity compensation into their overall financial picture.”

Guidance to Better Decisions

Although most respondents recognized the value of financial advice, the survey uncovered contradictions between that recognition and their reported behavior.

Three-quarters said they would be very or extremely confident in their ability to make the right decisions about their equity compensation if they had the help of a financial advisor. At the same time, 37% said they were more likely to get advice on how to manage their equity compensation through independent research rather than from an advisor or their employer.

Sixty-one percent of survey participants whose employer offered a workplace financial wellness program said they took advantage of it. Ninety percent of those who did so said it was helpful in planning for retirement, 84% in using equity compensation to reach financial goals, 83% with their investing skills, 82% in balancing equity compensation with other investments and 82% in developing a financial plan.

According to Schwab, the survey suggests that employees who do not to use a financial wellness program when it is offered might not fully understand the breadth of services this type of program can provide. For 40%, the top reason for not availing themselves of this resource was their belief that they did not need advice, while 27% said they were focused on more immediate financial issues, such debt.

“What’s striking is that participants largely believe that professional guidance can lead to better outcomes, but many are hesitant to use programs designed to address the specific issues they are facing because they feel their situation may not be complex enough to warrant professional advice,” McDonough said.

“One of the most beneficial aspects of such programs is helping workers to create a financial plan that can balance short- and long-term priorities and show them the next step forward. Plus, people with a financial plan tend to exhibit more positive saving and investing behaviors overall.”

— Check out How Lowering Taxes Drove Paper Millionaires to the Poorhouse on ThinkAdvisor.

Michael S. Fischer

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