According to new research from Schwab Stock Plan Services, the average vested value of U.S. workers’ equity compensation is $97,711 and the average total value of their equity compensation is $149,835.
The study, which examines the attitudes and behaviors of 1,000 equity compensation plan participants who currently receive employee stock options or restricted stock awards and/or participate in employee stock purchase plans (ESPPs), finds that 59% of respondents have NOT exercised or sold at least some of their equity compensation during their career. Their main reasons for not doing so included:
- Waiting for more favorable market conditions (38%),
- Being concerned about tax implications (30%), and
- Waiting for their equity compensation to become fully vested (28%).
“The workers we surveyed have a significant amount of their wealth in their equity compensation plans,” said Amy Reback, vice president, Schwab Stock Plan Services. “The data shows that they are making decisions about this benefit largely based on market conditions; while that and their outlook for their company are important factors, it’s also worth considering the value of equity compensation in the context of your overall financial picture. It’s important to keep a diversified portfolio and make decisions that take into account both short- and long-term goals.”
By and large, respondents consider equity compensation a long-term asset. Sixty percent say they will use it to help finance retirement, ranking it far above any other choice. For example, the next highest selections were financing their children’s education at 9%, financing their lifestyle in the short term at 8%, and paying off debt and buying a home, both at 5%.
Equity compensation makes up a significant amount of employees net worth. 41% for Millennials because they have had less time in the workforce and less time to accrue assets through other investments compared to 21% for Gen X and 20% for Boomers). Additionally, most respondents (68%) also hold company stock outside of their equity compensation plan, primarily in their 401(k) plan.
However, most participants are confident they will be able to use their equity compensation to reach their financial goals. Sixty-five percent say they are very or extremely confident, and another 28% say they are somewhat confident.
“It’s great to see that equity plan participants feel so confident about their benefits. However, some may encounter obstacles to meeting their goals if they remain overweighted in company stock. At Schwab, we suggest having no more than 10-20% of your overall portfolio in company stock,” added Reback. “Creating a financial plan – especially with help from a professional – can help you take a more holistic approach to managing your money.”
Most respondents, 82%, would like more education to help them understand equity compensation programs. The specific areas in which they want help include:
- Planning for retirement (68%),
- Using equity compensation to meet financial goals (55%),
- Developing a financial plan (52%), and
- Balancing equity compensation with other investments (51%).
Slightly over half (54%) of respondents are already working with a financial advisor, and only 78% of that group are getting help from the advisor with their equity compensation. Millennials are most likely to work with an advisor (60%), followed by Boomers (53%) and Gen Xers (47%).
Even when stock plan participants feel confident in their financial knowledge and decision-making abilities, getting advice from an advisor can help them formulate a solid plan and make the most of this benefit.