Three key steps companies can take to increase the return on their investment
October 02, 2014 – NEW YORK–(BUSINESS WIRE)–UBS Wealth Management Americas today released its latest UBS Participant Voice, an annual industry-wide survey designed to provide insights about equity plan participants’ attitudes and behaviors across companies, industries and service providers. The UBS Equity Award Value Index, launched in 2013, measures how participants perceive the value of their equity awards. The latest research found that:
“However, Participant Voice revealed that there are some clear actions companies can take that can have a huge impact on employee perception and participation.”
- Only 39% place considerable or high value on their equity award whereas, one in five participants (21%)”perceives virtually no value.”
- Two in five (40%) place minimal or moderate value in the equity awards they receive.
- Eighteen percent of participants view their equity award merely as a lottery ticket and seven in ten participants do not create or follow a long-term planning for managing company stock holdings.
“Equity awards can be a great wealth driver for employees. Given that each year companies grant more than $110 billion in equity to certain employees*, this raises questions regarding the perceived value of these awards and the missed opportunity to build long-term wealth,” said Michael Barry, head of UBS Equity Plan Advisory Services. “However, Participant Voice revealed that there are some clear actions companies can take that can have a huge impact on employee perception and participation.”
Participant Voice identified three core actions companies can take to involve employees and drive engagement in equity compensation plans; drive a strong culture, ensure plan design is straightforward and deliver personalized advice. When companies perform highly in these three areas, employees place significantly more value on their equity awards.
Culture has a strong impact on how employees view both their company’s future and their own equity plans. Participants who believe their company has a strong culture also believe in its growth potential: 91% of participants who rate their company’s culture as “excellent” described the long-term future of their company as “excellent” or “very good.” As a result, participants who are part of a strong company culture place significantly more value on their equity awards. When a culture rating improves from “poor” to “excellent,” the UBS Equity Award Value Index score sees a corresponding increase from 34 to 58. Similarly, from a long-term company outlook of “very pessimistic” to “very optimistic,” the UBS Equity Award Value Index score jumps from 34 to 56. Fostering a strong company culture leads to greater perceived value of equity awards.
Straightforward Plan Design
When a company’s equity plan is well understood, the equity value score is 55, as opposed to 37 when the plan is not understood at all. Simplicity is key – the more straightforward the plan, the more easily it is understood. Participant Voice found that participants view ESPP plans as the least complex plan, while performance share plans are considered the most complex.
Communications around key dates are particularly important factors for driving equity award value perceptions. Accordingly, 78% of those “extremely satisfied” with communications have a complete or near complete grasp of their company’s equity plan. When satisfaction with communications about key dates shifts from “not satisfied at all” to “extremely satisfied,” the equity value index score leaps from 35 to 63.
Personalized Education and Advice
Education and personalized advice have a strong impact on how much participants value their equity awards. As satisfaction with education improves the Equity Award Value Index increases from 36 to 65. The most effective education methods are one-on-one conversations, which is the highest contributors to participants’ satisfaction with their equity plan education according to 75% of respondents. For global participants, tailored communications help to improve understanding of equity plans and the value they place on equity awards: global participants who receive tailored communications scored a 51 on the equity plan index vs. a score of 45 for those who receive a generic version.
Similarly, providing personalized advice – contextualizing equity compensation as part of a participant’s overall financial life – causes participants to place more value on their equity awards. To illustrate, participants who view their equity compensation as part of a long-term plan have a significantly higher index score than participants who do not (61 vs. 36).
“Personalized advice is the key to effectively communicating the benefits of the equity award and leads to greater plan engagement. Participant Voice found those participants who place a higher value on their equity awards feel better about their financial situation and more confident about achieving their goals,” said Mr. Barry. “And that client confidence and satisfaction is our ultimate goal.”
Interestingly, participants across different industries tend to place different amounts of value on equity compensation. Surprisingly, technology sector participants have the lowest index scores at 44. While they feel optimistic about the long-term potential of their industry, they are less certain about their own company’s long-term prospects. Participants who work in healthcare and financial services have an index score of 52, while manufacturing scored a 51.
Participant Voice found that employees become increasingly engaged with their equity awards within three years of retirement, likely because they will be used to fund participants’ lives after work. Thirty three percent of those nearing retirement say that they have become more engaged with their company stock, while only 10% feel that they have become less engaged.
Investor sentiment towards long-term investing has fundamentally changed and so has the view of equity compensation awards. Participant Voice found that 53% of participants are more involved with managing their investments now compared to before the financial crisis and that 57% of participants are more skeptical about financial markets and long-term investing today compared to before the financial crisis. Regarding the long-term investment horizon, before the financial crisis 44% of participants considered it to be 10 years or more, today only 30% do. Another indicator of this shift, today only 30% of participants pick an investment and stick with it for the entire duration, down from 45% before the financial crisis.
UBS Equity Plan Advisory Services currently serves more than 150 companies representing more than one million participants in over 150 countries, delivering customized solutions and providing access to advice to all plan participants. UBS Equity Plan Advisory Services provides both partial and full plan administrative services, offering customized plan administration based on specific company needs.
In the past four years, UBS has invested nearly $200 million to bring clients cutting-edge technology and industry expertise. UBS Equity Plan Advisory Services earned the highest rating for partial and a top rating for full administration services, the only firm to be so highly rated in both categories, in the Group Five 2013 Stock Plan Administration Satisfaction Study.
We invite you read the full report.
*Equilar, Inc. Based on 2,885 companies in the Russell 3000, that have fiscal year-ends of July 31, 2012 or more recent, and valued the grant-date fair value of options, stock appreciation rights, restricted stock and stock unit awards granted by companies during the most recent fiscal year. All information was pulled from the 10-K and was calculated using company-disclosed figures for grant-date fair value.
The survey was fielded from May 14 – 20, 2014. It was an online, blind survey conducted of investors and clients using an external vendor (Research Now). 1,176 plan participants, who currently receive equity compensation from their company, completed the survey.
UBS draws on its 150-year heritage to serve private, institutional and corporate clients worldwide, as well as retail clients in Switzerland. Its business strategy is centered on its pre-eminent global wealth management businesses and its leading universal bank in Switzerland, complemented by its Global Asset Management business and its Investment Bank, with a focus on capital efficiency and businesses that offer a superior structural growth and profitability outlook.
UBS is present in all major financial centers worldwide. It has offices in more than 50 countries, with about 35% of its employees working in the Americas, 36% in Switzerland, 17% in the rest of Europe, the Middle East and Africa and 12% in Asia Pacific. UBS employs about 60,000 people around the world. Its shares are listed on the SIX Swiss Exchange and the New York Stock Exchange (NYSE).