Participants Report Using Equity Compensation as Retirement Benefit
Equity compensation is proving to be a top workplace benefit, with nearly three-quarters of employees in a recent Charles Schwab survey labeling it as an important feature, and others going so far as to call it a “must-have.”
Schwab’s study found that half of survey respondents see equity compensation as a vital tool to attain retirement goals. According to the research, company stock encompasses nearly one-third of participants’ investment portfolios. As a result, 72% of participants believe they’ll very likely reach their retirement savings goals, while 44% plan to use the benefit to finance retirement.
Others intend on using it to support their own education or children’s education (17%), to settle debt (11%), and to buy a home (8%).
The feature also helps them build/increase wealth (38%), learn more about investing (37%), alleviate financial stress (32%), and boost employee morale (32%), participants say.
As a greater number of participants utilize it as a retirement benefit, more employers plan on offering equity compensation to attract and retain talent, Schwab reports.
“Equity compensation is both a powerful benefit and a meaningful motivator,” said Andrew Salesky, managing director of Schwab Stock Plan Services. “Employers are always seeking to attract top talent. Through a strong equity program, they can demonstrate a commitment to employees’ financial security and also build stronger alignment. Our study shows that when participants understand and strategically use their equity, it can be transformative for their financial wellbeing.”
Nearly one-third of participants say they’ve sold or exercised equity awards to pay for immediate financial needs (32%), diversify their portfolios (29%), or satisfy routine planning goals (29%). Those who haven’t sold their awards are either waiting for better market conditions, are holding off until they become fully vested (40%), or are concerned about the potential tax implications in selling (29%).
Schwab’s research also underlined the impact of working with a financial advisor, noting that stock plan participants are likelier to understand equity compensation at a higher level when receiving financial guidance. Participants with an advisor are more likely to understand how to exercise or sell equity, assess the dollar value, and know the tax implications. Half of those with an advisor also say they’ll use equity compensation to finance retirement, compared to 39% of those without one. Further, while 56% feel confident in making equity decisions on their own, this number rises to 67% for those working with an advisor.
Schwab’s survey included responses from 420 equity compensation participants who currently contribute to their company’s 401(k) plan.
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.
