Financial wellness programs are becoming increasingly popular in the workplace. What does the term mean? What is the focus of those programs? Why should companies care and how does it relate to their employee equity compensation offerings?
Equity compensation plans are complicated. With all the best will in the world your company could introduce a great plan, but if your employees don’t understand how it works or how it could benefit them you are unlikely to see them signing up to become participants.
This is why considering and incorporating both financial literacy and financial wellness information into your equity plan communications is so crucial.
Financial wellness vs financial literacy
Financial literacy refers to an awareness and understanding around how to manage your own personal finances, whereas financial wellness is more of a measure of how effectively or otherwise you act on that knowledge and work towards achieving your financial goals.
Financial wellness is often referred to as the state of an individual’s personal financial situation and how they feel about it. You might assume that there will always be a correlation between how much someone earns and their financial wellness, however a major component is what people choose to do with their money as much as it is about how much money they make.
It’s the difference between understanding how to manage your own personal finances and how effectively or otherwise you act on that knowledge and work towards achieving your financial goals.
Financial wellness and equity compensation
Prior to the introduction and launch of any employee equity compensation plan the potential benefits should be clear, for employer and employee alike.
While many companies will conduct an education or awareness program that focuses on the specifics of how a plan will work, that emphasis alone may not capture the interest of employees to the level you want.
There can be a difference between people knowing how the plan operates and understanding how it could potentially impact them in real terms. Consider how an equity compensation plan with a five- year vesting term compares to say a pension plan. Both can prove beneficial, but how individuals feel about each will in part be dictated by their own financial priorities. Your employees may be looking at more short to medium term goals, rather than long term ones. With this in mind you could explain how the plan could potentially help them with goals more in this time frame, e.g., saving for a car, putting money aside for a child’s college education, building up the deposit for a house, etc.
The key overarching theme is education but it goes beyond that – it’s about helping them to apply that knowledge in a real way. Depending upon the sector, many young people enter the workforce nowadays with varying levels of financial education, and therefore may not have learned courses of actions and/or formed positive habits that might seem second nature to those more financially literate.
10 commandments of financial wellness
There is no strict set of rules, however there are certain elements that you should look to consider.
01 – Budgeting: It may seem obvious but creating and then sticking to an individual budget is a deliberate process, and not everyone takes the time to do it. Keeping track of monthly incomings and outgoings allows people to get a big picture view of their financial situation, especially important if they are making a decision around paying into an equity compensation plan.
02 – Retirement planning: Often people can be slow to recognize the need to make a financial plan for their later years. This is one of those topics where the distinction between financial literacy and financial wellness can be seen most clearly, i.e., understanding the importance of taking action in the here and now, and how it can impact you in your post-working life. Discussions around retirement planning will typically highlight the importance of setting long-term goals, budgeting and availing of company benefits, e.g., any relevant employee equity compensation plans.
03 – Setting goals: Not just in the context of your retirement but rather preparing for any number of life events that may require careful planning in order to avoid a shock to your finances. Among the most obvious items on such a list might be setting money aside to buy a home or to fund a child’s education.
04 – Building both general and specific financial knowledge: Financial wellness programs designed with particular audiences in mind could, if necessary, take the time to inform people on key financial concepts that need to be understood before individuals can equip themselves to make informed decisions, e.g. around whether to take part in an equity compensation plan. Encouraging financial literacy and knowledge works to help create a space in which individuals can build their financial wellness. Knowledge is key. People must know a) what they want to achieve, b) how to get there, and c) commit to that strategy.
05 – In-person supports: Depending upon the circumstances or scale of your equity compensation program, some companies may facilitate one-on-one financial counseling for employees. This might involve coaching designed to help people address concerns before they arise; alternatively, the focus might be on working through issues with employees currently experiencing financial concerns.
06 – Knowing your audience: It is easy for people interested and active in investing or other financial programs to forget that not everyone may be as knowledgeable as they are. That is why having a picture of your target audience is crucial to inform how your education and wellness programs could be rolled out. Are your employees desk-based or factory-based? While an e-mail campaign may suit the former, the latter may not have regular computer access so in-person meetings might suit better.
07 – Managing debt: A cornerstone of any financial wellness program, this ties into budgeting. While some forms of debt may, of course, be unavoidable from time to time, e.g., mortgage, too casual an attitude towards debt, such as relying on credit cards, is generally recommended to be avoided.
08 – Employee equity compensation opportunities: Equity compensation plans can offer employees a means to not only build personal wealth and therefore contribute positively to their own financial wellness, but they can help to contribute towards a work environment that favors retention and rewards positive employee behaviors. There are no guarantees, of course, but companies who take an active interest in their employees’ wellbeing and also offer equity compensation plans can often tick two boxes by promoting one in the context of the other. Employees who perhaps previously did not fully appreciate the potential opportunity that equity plans represent may stand to benefit through developing a greater understanding of how these programs work.
09 – Career progression: Financial wellness programs can also draw attention to career progression opportunities within a business, e.g., training opportunities that may enable someone to grow and advance within the company, add further benefit and increase their earning potential. With that greater salary comes the opportunity to use those funds wisely.
10 – Emergency fund: One of the few things anyone can rely on is the inevitability of unexpected expenses. Any financial wellness program worthy of the name will emphasize the need for individuals to set money aside on a regular basis, with a view towards that being a fund you dip into when one-off expenses come up.
What next?
Are you looking to introduce a new employee equity compensation plan or are you considering switching providers?
We can help not only with the platform and the software, to help ease the admin burden of operating a plan, but can also help our clients to create a communications strategy that focuses on awareness, education and can help to promote financial wellness.
Contact Workplace Solutions today to speak to our dedicated personnel and see how we could help you turn your employee equity compensation plans into reality.
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