Equity Before the Law: Equity Compensation Continues to Gain Ground
According to a recent study by Morgan Stanley, a benefits plan that includes equity compensation is the most effective way to motivate employees. Enter Papaya Global's equity management solution
Shachar Ben David| Feb 01, 2024
- A survey of 1,000 US-employed adults and 600 HR executives reveals that current economic conditions have increased financial stress among employees, negatively affecting their work.
- To alleviate the stress, employees increasingly seek competitive financial benefits, chief among them equity compensation, which they consider crucial to achieving long-term investment objectives.
- There are many variables to consider when creating an effective equity compensation plan, including local taxation, reporting obligations, and eligibility requirements for EoR employees.
- Papaya Global's equity management solution allows international companies to grant a wide range of equity plans in every location and for all types of employment.
Employee benefits are as old as the Roman Empire. In 13 B.C., Augustus Caesar created the first pension plan to incentivize veteran legionnaires to remain loyal to the empire, ensuring its stability. Fast forward more than 2,000 years, and financial benefits still play just as big of a role, if not bigger, in the stability of workplaces.
That’s especially true in a turbulent economic environment. A recent financial benefits study by Morgan Stanley, “State of the Workplace III,” explores the role and value of workplace benefits in 2023. The study, based on a survey of 1,000 US-employed adults and 600 HR executives, reveals that current economic conditions have increased financial stress among employees, raising performance concerns.
Key findings from the survey include:
- 85% of employees have dealt with financial issues in their personal lives. The most common struggle (40%) employees encounter is personal and household budgeting.
- 66% of employees (vs. 62% in 2022) reduced contributions to savings, citing inflation and/or recession concerns. Millennials (80%) and Gen Z (78%) cut back more compared to their Gen X (58%) and Boomer (40%) counterparts.
- More than 83% of HR leaders worry that financial issues could impact their employees’ productivity. With good reason, too: 66% of employees agree that financial stress is negatively affecting their work.
“A ballast against uncertainty”
To alleviate the stress, employees increasingly seek competitive financial benefits – often valuing them more than higher pay. Nearly 69% of employees say they are paying more attention to reviewing their benefits – up 9% from 2022 – and 89% would be more invested in staying at their company if it provided benefits that met their needs.
“We’re seeing momentum on both the employer and employee side to engage more intelligently with financial benefits as a ballast against uncertainty,” said Brian McDonald, Head of Morgan Stanley at Work. “To meet this moment, companies are going to have to get even more creative and efficient in leveraging holistic benefits offerings to attract, retain, and motivate their employees.”
One benefit that motivates talent is equity compensation. 84% of employees agree that having a benefits plan that includes equity compensation and stock ownership is the most effective way to motivate and keep them engaged. According to Morgan Stanley’s survey, the main reason is that employees consider equity compensation crucial to achieving their long-term investment objectives.
“This benefit – once thought of as a one-time bonus – is now viewed more holistically within an employee’s overall finances,” explained Scott Whatley, Managing Director and Global Head of Equity Solutions at Morgan Stanley at Work. “As equity compensation continues to gain ground, this is a critical insight for employers to absorb, and help inform how they communicate, package, and deliver equity compensation.”
Equity without borders
Delivering equity is easier said than done. That’s especially true for global companies; whether you offer restricted stock units (RSUs) or stock options – the most common forms of equity compensation – equity is a highly regulated space, with different tax requirements, securities compliance, and labor laws in every country.
There are many variables to consider when creating an effective equity compensation plan, starting with growth stages. Most equity programs are designed at the earliest stage of a company’s development, but things can change as the business grows. For example, a company might start with a program that includes only stock options and add RSUs when planning for an IPO, as it looks to attract top executive talent.
Other considerations include taxation in each of the company’s locations (both in terms of the tax rates and how the taxes are administered), taxable events (different awards trigger tax events at different times, depending on the local regulations), reporting obligations (e.g., disclosing relevant information to investors, securities commissions, and regulators), and eligibility requirements for EoR employees.
Going it alone means navigating regulatory hurdles and labyrinthine tax systems, potentially exposing companies to heavy fines for non-compliance. Not surprisingly, most companies choose to avoid this complex process. Instead, they invest in a total workforce platform, like Papaya Global, whose core offering includes benefits administration and an equity management solution for an international workforce.
Relying on in-house equity experts and highly-rated accounting and law firms in more than 160 countries, Papaya’s team works with clients to structure and implement equity programs based on each location’s guidelines. Papaya, a leader in global EOR services, also specializes in granting equity to EoR employees, ensuring compliance every step of the way and continuing the long (Roman) tradition of benefits administration.