Stock Plan Education Shows Improvement But Can Do Better

If corporate stock plan education were a student, it would be getting a B-minus. This is our takeaway from the data in E*TRADE Securities' 2014 Stock Plan Participant Survey, which obtained responses from nearly 5,000 people with equity compensation who use the firm as a broker. (Please note that the survey results below are solely owned by E*TRADE Financial Corporation and may not be reproduced or distributed in whole or in part without the written consent of E*TRADE, which is not affiliated with myStockOptions.com. E*TRADE Corporate Services provides equity compensation management solutions, including participant services from E*TRADE Securities.)

Mixed Report Card

On an optimistic note, E*TRADE's survey does affirm that the diligent efforts of stock plan professionals in recent years have been successful, as stock plan awareness in the surveyed population seems to have improved. However, there is (as always) more work to be done. While plan participants may understand more about their stock compensation than before, their overall level of knowledge remains somewhat low. Many participants are adequately familiar with their stock plans' features but are unsure about how and when to take action with their grants. Slightly more than half of the survey respondents say they have a good sense of the relationship between company stock price and the value of equity compensation, and that is good—but it also implies that nearly half of the respondents do not understand even this basic concept.

Survey Data Shows Areas For Improvement

Not surprisingly, given trends in equity comp over the past decade, the majority of stock plan participants surveyed by E*TRADE (70%) have restricted stock or RSUs, though a healthy 51% continue to have stock options. A significant majority (64%) participate in an employee stock purchase plan. Most of the surveyed plan participants, however, do not view equity compensation as a core part of their pay.

For example, among those who participate in an ESPP but do not have other grants, 40% consider the company's ESPP to be just a nice extra, like a bonus. Only 14% of them rank the ESPP as a core part of their compensation. Even more disturbingly, 19% view their ESPP participation as essentially a form of gambling, and 28% say they never think about it at all—making a total of 47% whose attitude is either fatalistic or apathetic. Among the surveyed participants who have received equity awards, the results are a little more encouraging: 53% of them see their participation as a bonus and 21% view their stock plan as a core part of compensation.

According to the survey, plan participants with equity awards and/or retail stock holdings at E*TRADE seem to have a better grasp of stock plan features than those who participate only in an ESPP and do not have retail holdings at E*TRADE. The respondent percentages in the table below tell the tale.

Understanding of plan aspect or feature	Stock plan participants (may or may not include ESPP)	ESPP participants only	Plan participants with retail holdings at E*TRADE
How to access account	80%	71%	89%
How to get information	59%	52%	67%
How the plan works	58%	47%	69%
Vesting period	71%	43%	73%
When to take action on awards	49%	29%	55%
Where to find education	41%	27%	47%
Capitalizing on the financial benefit	35%	26%	42%
Tax implications	36%	25%	42%

Perhaps not surprisingly, performance share awards require a more intensive degree of stock plan education and communication than other types of equity compensation do. In E*TRADE's survey, only about half of the surveyed participants with performance shares feel they have a good working knowledge of how the awards function and what to do with them.

Stock Plan Education Is A Core Company Activity

While stock plan professionals have made huge strides during recent years, stock plan education can always be better—both to help plan participants and to maximize the value of plans for companies, which are depending on them to attract, keep, and motivate valuable employees. The more participants know about their stock compensation, the more likely they are to appreciate it, avoid mistakes, benefit from it, and be loyal to the company. This puts stock plans in a crucial position for corporate vitality and value creation.

The independent, unbiased educational resources of myStockOptions.com can help with stock plan education. Our content is available for licensing by companies to help plan participants learn more about their equity comp. These resources include a growing number of videos and podcasts to complement our articles, FAQs, interactive quizzes, tax guides, glossary, and tools.

Comments

[Bill Fotsch]

I appreciate the points this article makes. More effectively engaging employees by helping them understand company stock plans can be accomplished most effectively by applying open-book principles. This involves making the economics of the business transparent, and involving all employees to understand, improve and participate in the economics of the business. This creates the learning organization. Corey Rosen's work at the National Center for Employee Ownership has documented how OBM helps improve company results and the lives of the emplooyees who drive those results. Over the past 20+ years, I have seen this work in small / medium sized privately held companies I have coached to larger companies like Southwest Airlines and Capital One.
These Harvard Business Review articles provide more background:
http://blogs.hbr.org/2013/12/a-winning-culture-keeps-score/
http://blogs.hbr.org/2014/06/share-your-financials-to-engage-employees/
http://blogs.hbr.org/2014/10/track-customer-experience-but-dont-forget-the-financials/
The HBR third article speaks about what we call, Customer-Centric Open Book©, which has been especially effective, by getting the input of both customers and employees. More information and case studies are available at www.openbookcoaching.com. I hope this input is helpful.