Workers Rely On Equities To Build Wealth, Hold Too Much Stock, Schwab Finds

A new survey from Schwab Stock Plan Services reveals that equity compensation accounts for a significant portion of participants’ net worth, with many employees’ portfolios overweighted in company stock even though they state they regularly rebalance their investment accounts.

According to the nationwide survey of 1,000 equity compensation plan participants who receive stock options or restricted stock awards and/or participate in employee stock purchase plans (ESPPs), equity compensation accounts on average for nearly 30 percent of employees’ net worth. Millennial employees have a greater share of their net worth in equity compensation than do their Gen X and Boomer counterparts (42%, compared to 24% and 19%, respectively). Almost three-quarters (73%) of employees surveyed also own company stock outside of their equity compensation plan, most (44%) in their workplace retirement plans.

Maintaining a high proportion of company stock may be a conscious choice, as 81 percent of employees say either they have rebalanced their investment accounts in the past twelve months (55%) or their account automatically rebalances itself (26%), and approximately two-thirds of them say they take their equity compensation or ESPP into account when rebalancing.

“For some investors, too much company stock can be too much of a good thing,” says Marc McDonough, senior vice president, Schwab Workplace Financial Solutions. Schwab typically recommends having no more than 10 to 20 percent of an investment portfolio in company stock, although that figure can vary depending on an individual’s financial situation.

“It’s clear that employees value their equity compensation as a major driver of wealth, but they must also appreciate how important it is to diversify,” said McDonough. “With so many variables, we encourage employees to ask for help to make sure they are thoughtfully integrating their equity compensation into their overall financial picture,” he added.

Making Better Decisions with Professional Guidance

Most respondents recognize the value of financial advice, but the survey reveals contradictions between that recognition and their reported behavior. Three-quarters say they would be very or extremely confident in their ability to make the right decisions about their equity compensation if they had the help of a financial advisor, and yet employees are more likely to get advice on how to manage their equity compensation through independent research (37%) than from interacting with a financial advisor (24%) or asking their employer (16%).

Workplace financial wellness programs are another source of guidance that can help employees understand and effectively manage financial complexities, offering direction in areas like equity compensation, budgeting and debt. According to the survey, 61 percent of those who are offered such a program take advantage of it. Those who participate say their program is helpful in a number of areas including planning for retirement (90%), using equity compensation to reach financial goals (84%), investing skills (83%), balancing equity compensation with other investments (82%), and developing a financial plan (82%).

The survey suggests that employees who are offered a financial wellness program but elect not to use it might not fully understand the breadth of services this type of program can provide. Their top reasons for not availing themselves of this resource are believing they don’t need advice (40%) and focusing on more immediate financial issues, like debt (27%).

“What’s striking is that participants largely believe that professional guidance can lead to better outcomes, but many are hesitant to use programs designed to address the specific issues they are facing because they feel their situation may not be complex enough to warrant professional advice,” McDonough continued. “One of the most beneficial aspects of such programs is helping workers to create a financial plan that can balance short- and long-term priorities and show them the next step forward. Plus, people with a financial plan tend to exhibit more positive saving and investing behaviors overall.”

Equity Compensation is Good for Employees and Employers Alike

Beyond just creating financial incentives for employees, equity compensation plans can have a significant impact on attracting and retaining talent. Close to 40 percent of respondents – including 60 percent of Millennials – said equity compensation was the top reason or one of the main reasons they took their job. Moreover, three-quarters of respondents believe that equity compensation is a very important or even an essential benefit.

Respondents cited a number of reasons why they value their equity compensation, including:

• It allows them to participate in the growth of their company (45%);
• They believe it will help them to significantly build their wealth (44%);
• It means the success of the company will play an important part in their own success (42%); and
• They believe it helps alleviate some of their financial stress (38%).

“Equity compensation plays a vital role in keeping workers engaged and committed to the success of their companies, which is good news for employers who choose to offer these benefits,” McDonough said.

About the Survey

This online survey of equity compensation participants was conducted by Logica Research (formerly Koski Research) for Schwab Stock Plan Services. Logica is neither affiliated with, nor employed by, Schwab Stock Plan Services. The survey is based on 1,000 interviews and has a 3 percent margin of error at the 95 percent confidence level. Survey respondents worked for companies that offer equity compensation plans, are currently participating in an equity compensation plan and were 25-70 years old. The average total value of respondents’ equity compensation was $98,908. Survey respondents were not asked to indicate whether their employer has accounts with Schwab Stock Plan Services. All data is self-reported by study participants and is not verified or validated. Respondents participated in the study between July 12 and July 20, 2018. Detailed results can be found here. Follow Stock Plan Services on LinkedIn for additional information.

About Charles Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

More information is available at www.aboutschwab.com. Follow us on Twitter, Facebook, YouTube and LinkedIn.

Disclosures

Brokerage Products: Not FDIC-Insured · No Bank Guarantee · May Lose Value

Schwab Stock Plan Services provides equity compensation plan services and other financial services to corporations and employees through Charles Schwab & Co., Inc. (“Schwab”). Schwab, a registered broker-dealer, offers brokerage and custody services to its customers.

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE: SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.

©2018 Charles Schwab & Co., Inc. All rights reserved. Member SIPC

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Source: The Charles Schwab Corporation