London — 19 November 2009 — In this economic climate, many employers are reviewing employee benefits and cutting back on those programs that are no longer considered impactful or cost effective. Given the volatility in equity markets, changes in accounting rules and growing cost constraints, will employee equity plans remain effective and viable in the future? Or will they be one of the legacy’ benefits on the chopping block during this recession? These were key questions in a survey report released today in London.
The survey report “Employee Equity Plans: Do They Have a Future?” is a collaboration among WorldatWork, Performance and Reward Centre (PARC) and Hewitt New Bridge Street.
A majority of respondent companies indicate they have no plans to cut back on employee equity plans in the next 24 months. They still consider equity plans an integral part of a company’s total rewards strategy a tool to help motivate and retain employees. Indeed, more than 70% of companies that are able to operate some type of employee equity plan choose to do so.
However, employees may need help seeing equity plans as a value-added benefit: less than 10% of employers indicate that a majority of eligible employees are participating in employee stock purchase plans (ESPPs). In addition, at least 80% of respondents indicate their options are underwater (i.e., the current share price is lower than the option price), but more than 80% of that group has taken no action to address the situation.
The study looked at the prevalence of three types of employee share plans: options, free/restricted shares and ESPPs in companies in the U.S., U.K. and Western Europe.
Key findings:
– Company size is important in predicting the presence of employee equity plans: they are more common among companies with 20,000 or more full-time employees.
– Industry is more important than geography in predicting the presence of an employee equity plan: these are most common among technology firms and financial institutions; least prevalent in consumer goods, manufacturing and consumer services.
– Substantive changes are not planned to pricing strategy relative to market in the next 24 months. In the U.S., most options will still be offered at market value while most ESPP shares will continue to be offered at a discount to market (discounts typically range from 5 to 15% below market price).
– A majority of plans have eligibility restrictions: first by level, then by location.
“All signs indicate that stock equity plans will remain as an employee benefit especially at large companies,” said Ryan Johnson, CCP, vice president of research at WorldatWork. “To maximize an equity plan’s value, employees need help understanding the risks and benefits. It is no longer enough for companies to offer equity; they also need to give employees the know-how to empower them to make good decisions.”
“Our survey confirms the importance of equity plans as an important part of the organization’s total rewards package,” said Don Lindner, CCP, senior practice leader at WorldatWork. “They are especially vital in terms of aligning employee interests and goals with the company’s.”
About the survey:
WorldatWork, Performance and Reward Centre (PARC) and Hewitt New Bridge Street collaborated on this survey, which was conducted in the second quarter of 2009. A total of 843 respondent companies participated across a broad array of industries. Nearly 75 percent of respondents were headquartered in the U.S., 13 percent in the U.K. and the remainder elsewhere (mostly Western Europe). About half of respondent companies have 10,000 or more employees. Almost three-quarters had annual revenues of more than $1 billion (USD). The research report includes case studies from a number of prominent organizations including GlaxoSmithKline, Standard Chartered Bank, Google and Starbucks.
About the sponsors:
WorldatWork is a global human resources association focused on compensation, benefits, work-life and integrated total rewards to attract, motivate and retain a talented workforce. Founded in 1955, WorldatWork provides a network of more than 30,000 members and professionals in 75 countries with training, certification, research, conferences and community.
It has offices in Scottsdale, Arizona, and Washington, D.C. For more information, visit www.worldatwork.org.
PARC was founded in 2004 to provide a centre of excellence for the development and management of high performing organisations. For more information, visit www.parcentre.com.
Hewitt New Bridge Street is the UK’s leading executive remuneration consultancy and is the named adviser in the Director’s Remuneration Reports of 35 FTSE 100 and 90 FTSE 250 companies. We have a single focus to assist companies design and implement executive remuneration practices which will help them meet their business objectives.
Hewitt Associates (NYSE: HEW) provides leading organisations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit www.hewitt.com
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