4 Ways to Help Employees Build Wealth and Loyalty

Your employees want to build their wealth and be better employees. Here’s how your equity program can help them get there.

  1. 1
    Use Equity to Enhance—Not Substitute for—Existing Pay

    Employers should use equity compensation to enhance existing wages, rather than substitute for salary. When wages are at or above market levels and employers offer equity compensation as an additional benefit, workers are likely to view it as a “gift” on top of their salary—and they tend to reciprocate with higher effort and cooperation at work, Castellano says.

     

    On the other hand, offering equity in lieu of market wages can have the opposite effect: Employees feel less motivated and less committed. They may also feel less secure about their financial situation, as their fixed wages are effectively reduced and more of their wealth is tied to company performance, a variable that can be hard to predict or fully control. 

  2. 2
    Offer Both Short- and Long-Term Rewards

    When employees view the equity they receive as part of their compensation, as opposed to a longer-term benefit, it can lead to short-term decision-making. For example, they may be more likely to cash out their vested shares to fund short-term income needs, which can be a detriment to their long-term savings goals such as funding their retirement.

     

    To limit this possibility, consider providing a short-term profit- or gain-sharing program alongside long-term equity compensation. Longer equity vesting periods, for example, can encourage employees to accumulate equity over an extended timeframe and help them keep their focus on the organization’s long-term results, not just its short-term performance.

  1. 3
    Keep Your Equity and Retirement Programs Separate

    Just as it’s important for employers not to substitute wages for equity participation, it is equally important not to substitute retirement benefits for equity rewards. Having a separate and diversified retirement portfolio, in addition to equity, can help reduce the risk to employees that their wealth is overly concentrated in too few assets that can fluctuate in value.

     

    Using equity to instead supplement retirement benefits can help employees feel more secure in the idea that they have a wider financial safety net, if one of their investments falters. And when employees feel more secure, they are more likely to participate in equity programs and feel higher levels of job satisfaction, motivation and company loyalty, notes Castellano. 

  2. 4
    Provide Equity Under Favorable Conditions

    For publicly traded companies, employees are of course free to buy their company’s stock on the open market with their own savings. However, Castellano notes that when employees instead receive shares as grants from their employer, or have the opportunity to purchase shares at a discount through stock purchase plans, they tend to perceive these holdings more as long-term investments. That perception can help employees work toward their own long-term savings goals and stay focused on the company’s long-term financial health.  

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