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Financial Planning Helps Employees Reap Benefits of Company Stock: Fidelity

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What You Need to Know

  • Many large companies offer equity compensation to their top employees (your potential clients).
  • Including that compensation in their financial planning leads to more proactive use of it, according to Fidelity
  • Employees are likely to add the equity to their plans when the award vests.

What are the effects of including company stock in an employee’s financial planning activities, or not doing so?

Fidelity Investments designed research to specifically measure the effect. In mid-2020, the firm surveyed 440 employees at publicly traded companies who have received equity awards within the last two years.

The findings, released Thursday, showed that employees whose financial plans includes equity compensation were twice as likely to take proactive steps to manage their stock awards. Of  those who include company stock in their overall financial planning, 72% accepted their awards, 52% exercised options and 57% sold shares. 

Among employees who do not consider equity compensation in their financial planning, only 34% accepted their award, 39% exercised options and 25% sold shares. 

Employees who include company stock in their financial planning are also twice as likely to work harder than employees who do not and are three times as likely to feel more loyal to their employer. 

Moreover, those who include company stock in their planning activities are twice as likely to feel that their stock award provides a sense of ownership in the company. 

The survey found that 59% of employees who include equity compensation in overall financial planning feel more confident about their ability to make good decisions with regard to their company’s plan, compared with just 34% of those who do not do so. 

In addition, employees who include stock awards in their financial plan are three times as likely to say they have improved overall financial confidence. 

The research also showed that 61% of these employees are likely to value their plan highly and are much likelier to recognize the tangible value of their company stock awards, compared with 30% of respondents who do not include company stock in their financial planning. 

According to the survey, 55% of respondents include the monetary value of stock plan benefits when calculating their compensation from their employer, while only 16% do not include it in their financial planning. 

Prompts to Include Company Stock  

“Organizations continue to offer company stock awards as a way to attract and retain top talent, as well as to reward top performers,” said Mark Haggerty, head of stock plan services at Fidelity Investments, in a statement.

Research from NASPP/Deloitte Consulting, cited by Fidelity, showed that 87% of companies offer equity compensation to attract and retain top talent, and 79% do so in order to reward and incentivize top performers. 

Haggerty noted that including company stock in financial planning is essential to unlocking the real value of these awards. Employees will better appreciate their company’s stock plan, and will understand how company stock awards can contribute to their overall financial well-being.

Fidelity’s study identified several events that often trigger employees to include company stock into their financial planning. 

One occurs when an employee’s company stock award vests. Fifty-seven percent of respondents who include stock awards in their financial plans said this motivated them to include their stock award in their planning activities. 

One in three said setting a specific financial or savings goal or receiving a new stock award caused them to include their award into their planning. 

 

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