A secret sauce is emerging in the battle to fight the great resignation, and it’s boosting employee engagement no end: stock awards. We’ve seen it first-hand with increasing numbers of our clients taking the decision to issue additional rewards to their staff post-pandemic. Many other companies have launched equity compensation packages for the first time in 2022 to help boost their recruitment and retention. And it’s working a treat.
Once upon a time, employee stock awards were used almost exclusively as a “perk” for senior executives, with workers lower down the ladder far less likely to be targeted. This view of stock compensation was becoming increasingly old-fashioned even before the pandemic hit, with more and more companies coming to appreciate the benefits that can accrue to them from more broadly targeted equity initiatives.
Now, as we emerge from two years of Covid-induced upheaval and workplace uncertainty, and companies find themselves fighting harder than ever to hold onto workers, more and more businesses are recognising that employee equity awards targeting most or even all workers represent a key element in any strategy designed to retain talent.
Bank of America: Using employee stock options to boost retention
Bank of America is one such business that recently announced plans to hand out an impressive $1 billion worth of restricted stock to almost the entire workforce. The headline grabbing move was made to incentivise their people to remain with the company for at least the next few years.
Under the terms of the plan, approximately 97% of the company’s workforce will benefit, with only those making more than $500,000 per annum excluded, as well as part-timers and workers in some overseas locations. The latter two groups receive a cash award instead, which comes with its downsides in comparison to more tax-friendly equity incentives. Eligible employees will receive between 65 and 600 restricted stock units, depending upon their compensation level. Those units will then vest over a period of four years, beginning in 2023.
In practical terms, this means that frontline workers such as bank tellers will receive shares valued at approximately $2,900 based on the company’s share price when the plan was announced. At the other end of the scale, higher paid eligible employees will receive restricted shares worth about $27,000 – not too shabby. This is reportedly the first time the company has opened up its stock awards program to lower-level employees making $100,000 or less per annum. Previously, those individuals were rewarded with one-time cash bonuses.
The bank has openly acknowledged that this initiative, along with a commitment to increase its hourly minimum wage for US-based employees to $25 by 2025, is part of an overall drive to attract and retain talent.
Companies are looking for different ways to incentivise employees
Global Shares’ Business Development Director John Meehan said that it is no coincidence that Bank of America has chosen this moment to extend its employee equity program to almost the entire workforce. “I think you can look at this in the context of what is being called the Great Resignation. Companies are more conscious than ever about the importance of retaining staff and how difficult it can be to replace people who leave.”
“More and more companies were coming to that conclusion even before the pandemic, but now we’re seeing many others realising that this is the way forward.”
He added: “Pre-Covid, companies were naturally moving in this direction anyway, but the urgency of huge numbers of people deciding to look at alternatives when it comes to their jobs is forcing companies to really examine their compensation and benefits packages. They really do need to start standing out and offering equity and a slice of the success of a company is really attractive.”
He added that from the company perspective stock awards are much more effective as a retention tool than cash bonuses, irrespective of whether you are dealing with senior executives or frontline employees. “Restricted stock creates a long-term hook. People know that they may be leaving thousands of dollars behind if they leave the company before their stock has fully vested, and that in itself will make employees more reluctant to move elsewhere than they otherwise might be. Compare that to the impact of a cash bonus. Yes, it will be welcome and appreciated at the time and it may generate some measure of goodwill and loyalty, but at the same time, it’ll usually be a one-off event. If someone receives a job offer from elsewhere the next day or the next month, they will hold onto that cash irrespective of whether they stay or go, so it’s not going to be as effective as a retention tool.”
Cash or shares: Which is better?
While this view highlights that companies should favor stock awards, there can be a trade-off involved, in that the value of stock awards will frequently exceed that of any cash bonus alternative. So, from the employee perspective, a cash bonus might seem more attractive – in that it is a one-off payment received upfront and it doesn’t necessarily tie them to the company – but one of the upsides of a stock award is that while it may take a few years for all the shares to vest, the ultimate value of the award will typically exceed what might otherwise have been received in the form of cash.
For example, Bank of America highlighted that its employees stand to make significantly more from their restricted shares allocations than they would have done had the company continued with its previous policy of awarding cash bonuses. They noted that last year lower-paid employees received $750 cash bonuses, as opposed to minimum awards under the new scheme being valued at $2,900.
So, in this instance the trade-off is clear. The most recent cash payment of $750 was received up front, but the restricted shares allocation for this category of employee is worth almost four times that amount, albeit with those shares vesting over a four-year period.
Employee stock awards are becoming the norm
2022 is sure to be a year of change in the business world, with wider stock awards programs set to become a feature of the landscape, as companies look to do all they can to retain existing workers and make themselves as attractive as possible to new talent.
The battle for talent – both from a recruitment and retention perspective – has rarely been as fierce as it is now, post pandemic. There’s an unprecedented churn in the labor market in developed countries. Some surveys indicate that more than 40% of workers are actively considering leaving their current employer. And as life gradually returns to “normal” following COVID pandemic, and people are faced with returning to the daily grind of commuting, going back to the office they’re definitely taking stock.
There are many reasons for why so many workers seem willing and even eager to embrace professional change, ranging from the pandemic leading to people reassessing their lives, to feeling burned out, to dissatisfaction with their employer, to a desire to continue with full-time remote working, to any number of other considerations.
While it is important for companies to understand what is driving this mood for change among workers, it is even more important for them to come up with strategies to help minimise its impact upon their business. The time and cost involved with replacing talent can cause major headaches, and the best way to deal with that is to look to prevent those departures in the first place, instead incentivising people to remain.
Interested in using employee stock awards in your retention strategy?
Just like Bank of America, at Global Shares we understand the power of employee ownership. We have over 15 years’ experience helping companies of all sizes harness the potential of equity to attract, retain and reward key talent. We’ve helped thousands of companies to design and implement award-winning employee share plans, so if you’re wondering how we can help you improve retention and get ahead of the Great Resignation, get in touch with us today.