How to Be a Better Equity Plan Sponsor to Black, Indigenous and People of Color (BIPOC) Employees

To achieve the potential benefits of equity compensation, such as improved employee loyalty, it’s important to maximize plan participation rates. This may require managers and senior leaders to more effectively engage people from every demographic.

In today’s increasingly competitive labor market, many companies may be looking for ways to enhance employee retention. And equity compensation might be a solution. In fact, according to the third annual Morgan Stanley at Work State of the Workplace Survey, 97% of HR leaders and 84% of employees say that equity compensation and stock ownership is the most effective way for companies to keep employees motivated and engaged.

The question not always posed, however, is: which employees? In a seminal study conducted by the Aspen Institute, researchers found that “… systemic barriers prevented women and people of color from accessing employee share ownership as a wealth-building strategy…”.¹ This, despite the fact that participation in employee stock ownership plans was found to help narrow race and gender wealth gaps.¹

Companies may want to take heed. That’s especially true for organizations seeking to maximize the benefits of their Diversity, Equity and Inclusion (DEI) programs. Beyond simply being “the right thing to do” DEI initiatives also present a strong business case for diversity in the workplace. Recent research shows that diverse companies earn 2.5 times more cash flow per employee than their less diverse peers.² For their part, inclusive teams are 35% more productive than more homogenous work groups. ²  

So how can employers use equity compensation to foster workforce diversity? One way is to focus on increasing plan participation rates among Black, Indigenous and People of Color (BIPOC) employees.

Here are four steps that may help.

Step One: Reset Company Leaders’ Expectations of What “Equity” Means

Wealth disparities among diverse communities in America can strongly influence the financial priorities of your employees. Consider: Between February 2022 and July 2022, employees’ feelings of financial wellness declined overall. However, the extent of that slide varied by race. While white/Caucasian employees saw a 7% reduction in their feelings of financial wellness, from 56% to 49%, Black/African American workers’ financial wellness scores plunged from 50% to 32%—a drop of nearly 20%. Other BIPOC employees experienced similar downtrends, with feelings of financial wellness declining from 47% to 33% among Hispanic/Latino employees.³  

Giving BIPOC employees access to equity awards may help turn that tide by supporting greater financial security and enhancing the ability of BIPOC workers to increase their net worth.  

But make no mistake: Access to equity compensation is just one component of an ideal workplace for BIPOC employees and does not substitute for adopting equitable pay standards. An environment that offers equal pay, performance recognition and advancement opportunities would be the goal to strive for in any organization. Currently, compared to every dollar earned by white workers, Black and Hispanic/Latino workers receive only 74 cents, while Black and Hispanic/Latina women—who are impacted by both the gender and racial pay gaps—receive 63 and 55 cents, respectively, compared to white men.⁴

Only when considered within the proper context can equity compensation plans foster employee loyalty. According to Rutgers University, employees paid less than the market norm and offered equity benefits are just as dissatisfied, un-committed and unmotivated as those who don’t receive equity benefits.⁵ When salaries are too low, equity compensation does not improve employee empowerment.⁵ 

Step Two: Remove Hurdles to Enrollment  

The simpler the communication strategy for your equity compensation plan, the more successful your enrollment may be. If details about the program are not clearly communicated, it may result in a lack of understanding and buy-in. That’s especially the case among employee populations who may be new to equity ownership.

To overcome these hurdles, it may help to provide your employees with resources that explain the ins and outs of equity compensation. This may include information about the rewards and risks of investment, as well as the potential tax impacts of their equity awards. It can also be useful to define recurring terms in the plan’s literature—particularly if they are complex or unfamiliar—and to provide employees with an easy-to-follow enrollment checklist.

 Although this type of communication strategy may sound straightforward, 97% of HR leaders say their company needs to do a better job providing resources to help employees understand how to maximize their financial benefits.⁶ Employees agree: 70% of employees say they would like more information about their financial benefits plans—with Black and Hispanic/Latino workers expressing the most interest in educational resources to help with retirement savings planning, understanding investment options and improving overall financial well-being.⁷

To help streamline enrollment, you may also want to consider using an equity compensation platform that automates the process, provides employees with at-a-glance access to the forms they need and embeds educational resources directly into the user interface. By providing your people with access to digital tools and personal guidance, you can support their financial empowerment and help them achieve their financial goals.

Step Three: Illustrate and Inspire

When working to increase equity plan participation rates across a diverse workforce, it may be helpful to recall that implementation and inclusion aren’t one and the same. While BIPOC workers may report lower participation in equity plans than white employees, that doesn’t mean the programs are somehow less attractive to them.

This is another area where financial education served up through a coordinated communications plan can help your employees understand the link between plan participation and their financial goals. The details of materials made available can help to motivate people to raise their hand to ask questions and, with increased financial literacy, might inspire employees to enroll in the companies’ equity compensation plan.

One way to illustrate the benefits of participation may be to highlight the experiences of real employees. When co-workers discuss the ways in which equity awards may have enriched their lives—by perhaps supporting their educational goals, helping them reduce debt or giving them the resources to make home ownership affordable—it may inspire others to prioritize plan participation too.

Step Four: Motivate and Monitor  

If executed properly, your equity compensation plan may help your company enhance employee retention, while enabling employees to reach their long-term financial goals. To achieve this aim, you may want to identify critical moments in the employee lifecycle (e.g., one-to-ones, daily standups, and performance reviews) when you can customize messaging about the program’s potential opportunities and importance for individual employees. Increasingly, companies are turning to Employee Resource Groups (ERGs) to share these messages with traditionally underrepresented segments of workers to ensure these communications remain clear and properly targeted.⁸

Continuous monitoring of participation levels across diverse employee populations may also help you assess which strategies are working and which may need to be refined. Consider requesting employee feedback on an ongoing basis to learn what resonates most across various employee segments and among diverse audiences.

Help To Empower

Comprehensive and customized equity compensation education can help to empower employees to re-envision their financial futures with renewed optimism. To learn more about how to target your equity plan education and workplace financial benefits to all employees, contact Morgan Stanley at Work.