Charles Schwab Survey Results on Equity Compensation: Press Release and Follow-Up Articles

Stock Plans Holding Up Despite Downturn: Schwab

November 10, 2009

PlanSponsor

By Nevin E. Adams

One might think that depressed equity markets, rising unemployment, and shifting accounting treatments would have weighed on stock option issuance.

However, a new study of 200 corporate stock plan decision makers from companies around the country commissioned by Charles Schwab found that most employer respondents are offering the same or even more stock plan benefits to their employees since a year ago.

According to an announcement of the survey, one in four respondents (25%) says their company plans to increase stock plan benefits in the next year, while more than two-thirds (68%) plan to maintain benefits at the current level.  

Additionally, Schwab notes that these benefits are not just for senior-level employees:   

• Half (50%) of participating companies now offer performance shares to manager-level employees.


• Nearly half (48%) offer manager-level employees stock options and one-third (34%) award restricted stock to managers.


• More than a quarter offer performance shares (26%) and/or stock options (27%) to employees below the manager level, while 17% award restricted stock to this group of employees.

Benefit Targets

Schwab noted that these plans are targeted more toward existing employees than recruits, noting that motivating employees to support the success of their company (65%) and giving employees a sense of ownership in the company (58%) were most commonly cited as reasons for offering these benefits, whereas just 12% of respondents saw them as a key recruiting tool.  

Across all employee groups, the survey found today’s most common stock plan offering is stock options, which are options to purchase company stock at a specified price. They are granted by 71% of responding companies, followed by:  

• Restricted stock (64% of responding companies)—stock issued to employees that typically vests over a period of time.


• Performance shares (51% of responding companies)—stock issued to employees based on corporate performance.

Current breakdown notwithstanding, Schwab notes that the balance may be shifting to performance-based rewards.  More than three-quarters (77%) of employer respondents are granting more or the same number of performance shares, while just over two-thirds are issuing more or the same number of restricted stock and 64% are distributing more or the same number of stock options.     

 “Our survey shows that companies are continuing to employ and expand different types of stock plan programs to reward employees across the company, largely as a motivational tool to build loyalty among existing employees” said Larry Bohrer, Charles Schwab Stock Plan Services vice president, in a press release.   

Grade Expectations

As for employee understanding of the option, 36% of respondents gave their non-executive employees a “C” grade.  Executive level employees received higher marks, but still only about half (55%) of respondents gave their executives an “A” for their level of understanding of company stock plans.  

Schwab found nearly half of survey respondents (48%) consider educating employees about the features and benefits of their stock plan a “significant challenge,” but the vast majority (78%) say that educating employees on the stock plan value and benefits will be an important focus for their company during the next two years.  Schwab said those efforts are already underway, citing:  

• 64% - include information about the programs in new hire benefits information packets


• 63% - provide information on the employee Web site


• 59% - include stock plan information details in any discussions of overall employee benefits packages 

While one in four schedule one-on-one employee consultations with their stock plan provider.

Schwab notes that employers are also aiming to boost participation in employee stock purchase plans (ESPP), which often allow employees to purchase company stock at a discounted price.  Nearly two-thirds of company respondents currently offer an ESPP to their employees, with 86% extending their program to manager-level workers and nearly as many (81%) offer an ESPP to other lower-level employees.  More than half of survey respondents (56%) say ESPP participation has increased or stayed the same since the market downturn, and roughly a third (30%) of employers are making more efforts to increase employee participation in the ESPP.   

“The ESPP can be an effective way to reward employees and create an ownership culture,” said Bohrer. “Our survey shows that more employers are looking to increase participation in ESPP plans as an important piece of their overall benefits package for employees.”   

Additional information about Charles Schwab Stock Plan Services is available atwww.scrs.schwab.com

Survey Specs

In September 2009, Koski Research conducted an online survey and gathered a total of 200 responses from stock plan decision makers at public companies ranging from $25 million to more than $50 billion in revenue. Respondents work for companies in a broad cross-section of industries with the manufacturing, technology, and financial services industries particularly well represented, according to a press release about the survey.