Do Your Employees Understand Their Equity Awards?

Equity awards are a cornerstone of modern compensation packages, but they often present challenges for both employees and employers. From understanding vesting schedules to navigating tax implications, many employees feel overwhelmed by the complexity of their equity benefits. This confusion can lead to poor decision-making, diminished financial wellness, and underutilization of valuable equity programs.

As organizations strive to offer competitive benefits and retain top talent, the question arises: Do your employees really understand their equity awards? And more importantly, how can we as admins help bridge the knowledge gap to ensure employees can make informed financial decisions?

The Employee Perspective

Equity awards such as stock options, RSUs, and ESPPs often come with confusing jargon and intricate tax implications that fly over the head of the uninitiated. For many employees, equity is one of the most significant components of their compensation package, yet understanding their equity can make them feel like they are solving a financial puzzle.

Equity often represents over 30% of an employees' net worth, yet many are uncertain about how to incorporate it into their broader financial goals. Employees often ask themselves:

• Should I hold or sell my shares once vested?
• What are the tax consequences if I sell now?
• How does this equity award fit into my retirement plan?

Without proper education, employees may leave significant wealth-building opportunities on the table, or worse, make decisions that lead to financial setbacks.

To ensure that your employees make the most of their equity awards, don’t miss the NASPP Annual Conference session: "Top 5 Reasons Employees Don’t Understand Equity Awards." 

Lessons from Nvidia and Twilio

It's not enough for companies to simply offer equity awards—they need to ensure that employees understand how to make the most of them. Financial wellness programs are increasingly becoming a key component of this education process. Companies like Nvidia and Twilio have taken proactive approaches to integrate equity education into their overall employee financial wellness initiatives.

As stated in the NASPP Webinar: Help Employees to Make Smarter Equity Award Decisions, Nvidia has been known to treat financial education as more than just a one-off seminar. Their robust program has included Certified Financial Planners, who are available to employees for one-on-one consultations, which has helped contribute to a 96% participation rate in their ESPP program, demonstrating that when employees are empowered with the right tools, they are more likely to engage in wealth-building opportunities.

Twilio as stated in the same webinar, has taken a similar approach. By offering monthly learning sessions on RSUs, stock options, and overall financial wellness, Twilio has been able to foster an environment where employees feel supported in their financial journey and their 72% ESPP participation rate is indicative of this.

Breaking Down the Knowledge Gap: Tailored Education for Diverse Needs

From recent insights, it’s clear that a one-size-fits-all approach to employee education doesn’t work. Employees are at different stages of their financial journey, and their needs vary significantly. To address this, companies should consider offering targeted resources based on employee personas:

• First-time recipients: Need foundational education on what equity is, how it works, and the potential benefits and risks.
• Experienced employees: Are looking for more advanced tools, such as portfolio diversification strategies and tax optimization.
• Life event planners: Require guidance on how equity fits into their evolving financial plans as they approach major milestones like home buying or retirement.

The most successful companies recognize that financial wellness is an ongoing commitment, especially since employees' financial needs evolve over time. Twilio, for instance, has built a financial wellness panel to ensure employees have access to consistent, tailored advice. Additionally, they offer resource group-specific workshops that address the unique financial needs of employees from diverse backgrounds, further personalizing their approach.

Why Education Matters