Where employee retention, engagement and equity compensation intersect

One of the key priorities for any company, whether a start-up or long established, is employee retention.  You want to keep top talent on the payroll. Not just because of the positive contribution those individuals make, but also in recognition of the experience and know-how lost when key people leave your organization, as well as the time and cost associated with replacing them.

Consequences of employee turnover

According to a recent Work Institute Retention Report, almost 45 million workers in the US chose to leave or change jobs in 2023. This figure corresponds to more than 27% of the total available workforce. These numbers represent a decrease on those seen at the height of the ‘Great Resignation’ in 2022, but still constitute a massive headache for employers and HR departments, who are left to grapple with the implications of staff turnover.

That same report outlines how, when you factor in direct (e.g., advertising, training) and indirect costs (e.g., loss of productivity, interview time), US companies spent close to $900 million last year in replacing former employees.

Equity compensation plans and retention

Clearly, companies would prefer to avoid facing that level of expense and associated aggravation. But how to go about it? This is where equity compensation could play a crucial role. Among the main reasons why businesses introduce employee share plans is to make themselves more attractive in terms of both recruitment and retention.

There are many reasons they are linked with greater retention, including:

Increased motivation: When you grant employees a stake in the business, they are gaining  a vested interest in seeing it do well, which can help to encourage them to perform better.

More alignment: The priorities of the business and those of the individual employee become more aligned, with a shared desire to see the company succeed.

Greater loyalty: When employees have a stake in the company they work for this can translate into greater feelings of loyalty, which can mean a greater likelihood of staying with the company into the long-term.

These three points are all an expression of engagement.

Engagement in the workplace

Cultivating engagement in your workplace is vital when you are focused on employee retention. Financial incentives like cash on its own can be effective, but the reward ends with the pay-out and there may be no incentive beyond that point for the employee to stay. To be truly effective therefore it needs to be about more than merely material gain and instead make the individual feel truly engaged. However, if some employees feel locked into an equity compensation plan vesting schedule and are simply waiting for an opportunity to cash out, then the core problem hasn’t been addressed; you’ve just kicked the can down the road, delaying the expense and headaches of dealing with turnover until later.

When an employee is engaged in their work, then their job becomes more than merely a transactional arrangement. At the risk of being over-simplistic, when they are engaged employees will care more about their work, be more likely to perform to a higher standard, and, as a logical extension, be less likely to want to change jobs.

We recognize that engagement can be a driver for retention, but we also know that approximately one-in-four US workers voluntarily left their job in 2023, so what conclusions can we draw from that?

Polling company Gallup reports that just 33% of US workers said they were engaged in their work in 2023, and that employees not engaged or actively disengaged cost companies around $1.9 trillion in lost productivity. Gallup regularly tracks engagement in the workplace and their ongoing findings point to a general downward trend since the second half of 2021, with this, interestingly, coinciding with the Great Resignation and the ongoing issues around retention.

Again, employee equity compensation has a role to play here. Effective equity compensation strategies can work to help boost engagement, with this in turn being linked to higher productivity and greater levels of retention.

As we can see employee retention and engagement go hand-in-hand.

What next?

When you consider the potential benefits employee equity compensation can bring as a way to motivate your employees to perform, you can see how this could help to not only promote retention and engagement, but, as the research suggests, also have positive knock-on effects in terms of productivity and growth.

J.P. Workplace Solutions is a tech and service-based offering, created to empower your teams to easily navigate their workplace incentives with confidence. Our intuitive solutions help you attract and keep the talented people who believe in your company as much as you believe in them. We understand that your employees are at the heart of everything you do.

If you want to explore the possibilities around employee share plans for your business, contact J.P. Morgan Workplace Solutions today and speak to our experienced team.

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