UPDATES! Why do companies grant stock options, restricted stock, and other equity awards? Do surveys show that employees really value them?
A company may grant equity awards or offer an employee stock purchase plan (ESPP) for a variety of reasons:
- Attracting and retaining valuable employees.
- Motivating employees to work harder to increase the value of the company and its stock price.
- Aligning the financial interests of employees with those of shareholders.
- Conserving cash by paying part of compensation in stock options, restricted stock, stock appreciation rights, or other stock grants.
- Creating an ownership culture.
- Keeping its compensation package competitive with others in its industry and geographic area.
In a message to employees, the CEO of Apple, Tim Cook, nicely expresses the importance of stock grants and the reasons for awarding them:
"I'm excited to let you know that we're also increasing our investment in our most important resource—our people. You are the heart and soul of Apple and we want you to share in the success made possible through your efforts. Your dedication helps Apple make the best products in the world, surprise and delight our customers, and ultimately make the world a better place. To show our support for our team and our confidence in Apple's future, we’ll be issuing a grant of $2,500 in restricted stock units to all individual contributors and management up to and including Senior Managers worldwide. Both full-time and part-time employees across all aspects of Apple's business are eligible."
The perspective of Apple is not limited to larger companies. At the Florida company PGT Industries, the subject of a local newspaper article in 2018, the CEO says of its stock plan "we hope that it fuels our team's pride of ownership and rewards them for their great work." In a company press release, the CEO of Freshpet similarly explains why it made company-wide RSU grants: "We know that all of our team members contribute to our success and we believe they should all share in our success. That is the essence of true ownership."
Survey results published in UBS Workplace Voice (2022) report that 74% of the responding employees say "equity awards are highly relevant" when choosing a new job.
Surveys Show Common Reasons For Granting Equity Awards And Why Employees Value Them
- Morgan Stanley
- Fidelity Stock Plan Services
- Schwab Stock Plan Services
- Buck Consultants
In The State Of Equity Plan Management 2022, a survey of 408 executives in various roles at public and private companies, Morgan Stanley found that "the primary purpose of equity compensation remains to attract and retain talent." This is true now more than ever amid the "Great Resignation" ushered in by the upheaval of the Covid-19 pandemic. "Employers are hyper-focused on attracting and retaining talent," the report observes. "With attrition concerns reaching new heights, equity compensation becomes a key part of the compensation strategy conversation."
Morgan Stanley's 2022 survey found the following about how the responding public and private companies rank their reasons for granting equity compensation.
|Objective for offering equity comp||First||Second||Third||Fourth|
|Attract and retain talent||32%||26%||19%||24%|
|Align employees’ financial interest and goals with those of the company||31%||27%||21%||20%|
|Access to tax benefits and deductions||19%||19%||31%||31%|
|Reduce cash spending||18%||27%||29%||26%|
The survey also found 88% of the companies report that their equity comp programs are either "excellent" or "good" at retaining employees.
A survey by Morgan Stanley in 2021 (State Of The Workplace Financial Benefits Study 2021) assessed how workplace changes since the start of the pandemic have influenced perceptions of employee benefits, including stock compensation. The survey obtained responses from 1,000 employed adults and 600 HR executives. Some of its key findings related to stock compensation:
- 93% of HR executives and 75% of employees say that equity compensation and stock ownership are the most effective ways to motivate employees.
- Equity compensation is a desired benefit for various reasons: "Gives me a stake in the success of the company" (27%); "Helps meet long-term goals" (26%); "Provides an additional source of income" (23%); "Validates performance as an employee" (13%).
- Nearly all of the surveyed employees say they "would be more invested in staying at their present company if they placed a greater emphasis on equity compensation."
An earlier Morgan Stanley survey of employees with equity awards found that 59% of the respondents regard their grants as a major part of their compensation. Even more (82%) think that operating a stock plan is a smart business move for their company. Most of the survey respondents (92%) expressed satisfaction with their companies' stock plans, and 65% praised their stock plans as "extremely or very valuable" employee benefits.
Research by Fidelity published in 2021 (Unlocking Success—For You And Your Employees) found that employees who include equity compensation in their financial planning are "nearly three times as likely to feel loyal to their employer" than those who do not. Its survey of stock plan participants revealed:
- 51% feel more loyal to their company as a result of equity grants
- 42% said they work harder because of stock compensation, "knowing that the stock plan will reward in line with company's performance"
- 61% reported that equity comp gives them a sense of employee ownership in the company
- 53% said that an important factor in taking a different job at another company would be the presence of a similar stock plan
In 2019, Fidelity Investments published results from a survey of stock plan participant attitudes and knowledge in which, interestingly, the results are broken down by gender (see the related press release and fact sheet). For example:
- 49% of women (45% of men) indicate that a company stock plan is an important benefit in a new job, while 40% of women (31% of men) agree that giving up stock plan benefits would make it difficult to switch jobs.
- 52% of women (49% of men) say that a company stock plan increases loyalty to their employer.
- 64% of women and men get a sense of ownership from the stock plan.
- 67% of women (64% of men) indicate they are very satisfied with their company's stock plan.
- 48% (46% of men) of women say they work harder knowing that the company stock plan rewards them for their company’s performance.
- 48% of women (66% of men) say they understand very well their stock plan, and 32% of women (47% of men) are confident they know very well the tax implications of selling shares.
In 2016, a survey of more than 2,000 stock plan participants by Fidelity found that employees who participate in company stock plans tend to be "more loyal and motivated." Moreover, Fidelity concluded that "participants who are more knowledgeable about their stock plan have higher satisfaction."
- The majority (63%) of the surveyed employees reported that stock plan participation gives them "a sense of ownership in the company."
- More than half (53%) of the respondents indicated that company stock plans have strengthened their loyalty to the company.
- An almost equal percentage (52%) agreed with the statement "I work harder knowing my stock plan will reward me for my company's performance."
- Just under half of the surveyed employees indicated that when they are considering a new job, the presence of a company stock plan is a major attraction.
Schwab Stock Plan Services surveyed about 1,000 stock plan participants in 2020. Nearly half (43%) of the surveyed participants have recently exercised options, purchased shares in an ESPP, or sold shares acquired from stock compensation. Over a third (37%) of all the respondents said that equity comp was one of the main reasons why they took their current job. This is significantly more than the percentage that said the same in 2019 (28%). Among Millennials, more than half (53%) said stock compensation was the chief reason or one of the major reasons for taking their current job.
In its 2019 survey, Schwab Stock Plan Services found that 87% of the responding employees said a stock compensation program would attract them to work for an established public company. Just over half (51%) of the respondents who indicated that equity compensation is important to them said it's because stock grants allows them to participate in the growth of their company. A significant portion (41%) reported that they would not consider leaving their current company, or would delay leaving, until after the next vesting of their equity grants. These survey results suggest that equity compensation continues to be an important part of attracting and retaining employees–especially younger employees.
For data and findings from prior Schwab surveys, see another FAQ.
In 2019, E*TRADE surveyed stock plan participants at its corporate clients. The survey discovered that participants younger than 35 years old (Millennials and Generation Z) view stock plan benefits very differently than older participants, especially Baby Boomers (over the age of 55). Some notable findings:
- Among Millennials and GenZ, more than half (57%) said stock plan benefits are an important consideration when changing jobs, while only 46% of Boomers feel that way.
- Company loyalty is a bigger factor in the stock comp behavior of Millennials and GenZ: 35% said they would hold shares acquired from stock comp because they believe in the company's future performance (by contrast, only about 25% of the Boomers would).
The table below breaks down the survey results about awareness and appreciation of company stock plans.
|Survey question||All participants||Under 35||Age 35–44||Age 45–54||Age 55+|
|I have a good idea how much my stock plan benefits are worth||74%||70%||74%||76%||76%|
|I closely follow my company's stock price||67%||66%||67%||67%||65%|
|I could explain how my stock plan works to a colleague or friend||62%||63%||63%||63%||61%|
|My stock plan provides me with a sense of ownership in the company||59%||53%||58%||63%||61%|
|Stock plan benefits are an important consideration for me in changing jobs||54%||57%||58%||57%||46%|
|My contributions to my company's performance are acknowledged through the equity grants I receive||46%||44%||48%||49%||44%|
|I include the value of my stock plan when calculating my total compensation||45%||41%||25%||48%||44%|
In a survey, the National Association of Stock Plan Professionals found that the following were the most commonly reported corporate reasons for granting stock options and restricted stock/RSUs.
|Reason for making grants to employees or executives||For stock options (% of companies)||For restricted stock/RSUs (% of companies)|
|Align with shareholder interests||79%||82%|
|Remaining competitive with industry peers||69%||78%|
|Fostering a culture of employee ownership||34%||40%|
|Reward for meeting specific performance targets||22%||47%|
|Normal practice at hiring||19%||30%|
In 2020, a UBS survey of 319 stock plan participants found that while market declines and volatility related to Covid-19 have somewhat diminished employees' perceived value of stock compensation, their long-term belief in the value of their equity awards remains strong. Three quarters of the surveyed employees say they are optimistic about the future of their companies and industries. "Communication is key," the survey report adds, noting that nearly all of the surveyed participants (93%) say that good stock plan communication from their companies "is very effective at helping them understand how Covid-19 impacts equity compensation."
The UBS survey report further explains: "While Covid-19 is having an impact on employees' attitudes, it is relatively minor. The biggest impact on personal finances from the pandemic is the increased importance of financial advice across all demographics." The study revealed that 86% of the surveyed stock plan participants want more guidance on their equity awards and related holdings of company stock. The importance of guidance is underscored by the fact that slightly more than half the surveyed employees sold company shares because of pandemic-related volatility and almost 60% of them regretted the stock sale afterward. Men, younger generations, and wealthy employees were most likely to sell shares.
An earlier UBS survey (UBS Participant Voice: The UBS Equity Award Value Index) presents a number of interesting findings which show that the more experience employees have with equity awards, the more they value them and are motivated by them. For example, while the survey found that at least some employees at every level of vesting experience perceive equity compensation as "a way to build wealth," more than half (55%) of the respondents with six or more vesting experiences felt this way.
In the 2014 iQuantic Global Long-Term Incentive Practices Survey by Buck Consultants, which surveyed 107 companies in 40 countries, respondents reported the following purposes as major reasons for granting equity awards.
|Reason for making equity awards||Percentage of companies|
(up from 67% in 2013)
|Acquisition or merger||50%|
|Recognition of excellent job performance||60%|
|One-time broad-based grant||50%
(up from 33% in 2013)
|Special skill set||50%
(up from 19% in 2013)
|Filing of patent||7%|
(up from 6% in 2013)
The compensation/HR organization WorldatWork, along with the Performance and Reward Centre and Hewitt New Bridge Street, surveyed 844 mostly American and British companies to ascertain their use of stock plans and their attitudes toward them in Employee Equity Plans: Do They Have A Future? (not available online). More than half of the responding companies make stock grants to employees. Over 60% of the companies operate employee stock purchase plans. The following table shows the primary reasons that the surveyed companies cited for granting equity awards, and the percentage of companies that gave each as the primary reason for a particular type of stock compensation.
|Primary reason||Stock options||Restricted stock/RSUs||ESPPs|
|Align interests; get employees to focus on share price||45.28%||47.10%||61.69%|
|Attract and retain employees||22.64%||30.32%||7.46%|
|Needed for competitive rewards/benefits package||14.47%||7.10%||8.96%|
|Create wealth for employees||2.52%||3.87%||6.97%|
|Corporate tax efficiency||2.52%||3.23%||4.48%|
|Align employee awards with executive awards||0.63%||2.58%||1%|
Equity Compensation Can Even Boost Innovation And Operational Efficiency
Academic research has found that companies offering stock options to nonexecutive employees are more innovative (see "Non-executive employee stock options and corporate innovation" in the Journal of Financial Economics). Companies in the 75th percentile for stock options per employee applied for 96% more patents and received 105% more quality-adjusted patent citations than companies in the 25th percentile did.
In an unusual twist on common practices, a newly public company, Gardner Denver Holdings (backed by private equity firm KKR), granted $100 million in shares to 6,000 employees not already part of its equity program. This included hourly workers and staff in customer service and sales, with equity grants equal to about 40% of their annual salaries. Employees, including managers, own about 10% of the company.
A Bloomberg news report on this quotes Pete Stavros, head of KKR's industrial team and chairman of Gardner Denver at the time. He said employee ownership at manufacturers can be effective at improving operations in which the company needs to do a "a million things a little better." He observes that "it's the workers on the front lines that often know where the inefficiencies are to fix and they share in the success through their equity stake." According to an article in The Wall Street Journal, Mr. Stavros has since started a nonprofit organization to promote employee ownership.