Getting equity comp? Better have a financial plan, report finds

How to handle equity compensation is a major consideration for workers who are eligible for it, and they often make better decisions when it’s part of their overall financial plan, according to a report Thursday from Fidelity Investments.

How to handle equity compensation is especially salient for Silicon Valley workers who suddenly find themselves with considerable assets because their companies have recently gone public. Such employees, when including the stock in their financial plans, are twice as likely to be active in managing their awards, including accepting them, exercising options or deciding to sell.

When company stock awards are part of a financial plan, 62% of people said the awards have improved their financial confidence, versus 22% who receive awards but don’t factor the stock into their plans, according to Fidelity. Considering such assets within a financial plan can help employees decide how much of their assets are appropriate to have in company stock and when to liquidate.

Company stock ownership also correlates with higher 401(k) balances, the company found in a report last year. Workers who participate in employee stock purchase plans on average had 401(k) balances that were a third higher than those who participated in 401(k)s alone, the company reported.

“We’ve always instinctively believed in the value of including this in personal planning,” said Emily Cervino, head of industry relationships and thought leadership in Fidelity’s stock plan business. “These programs are expensive … Any way [employers] can improve their return on investment is positive for them.”

Companies that compensate workers with stock have a big incentive to get those employees to consider the holdings in the context of their overall financial plan, Cervino said.

Among workers who add company stock into their financial planning considerations, 51% said they felt more loyal to their employers because of the equity compensation, versus 19% of those who receive stock but don’t include it in their financial plans, according to Fidelity. Employees were also more likely to say that stock compensation has inspired them to work harder (42% versus 20%) and feel a sense of ownership in the company (61% versus 33%).

“The benefit of financial planning helps the company with respect to the administration of the plan,” Cervino said. “Employees who include it in financial planning are more likely to take action on their plan and do things that employers want them to do, like accepting their grant agreement.”

Fidelity’s report is based on survey responses last June and July from 440 workers at publicly traded companies who received stock awards over the prior two years. Sixty-nine percent of respondents said they included equity compensation in their financial plans, while 31% said they did not. Those with higher net worth were much more likely to say they factored company stock into such plans.

About 70% of the business’s corporate clients have multiple lines of service with the company, such as equity compensation and 401(k) plans.