The NASPP Blog

There’s been a theme emerging in some of my recent blogs, covering a wave of companies finding creative ways to expand their equity compensation pool. Last week I talked about the move of Twitter’s CEO to give his own stock back to the company for use in the equity plans. Shortly before that, Apple announced it was giving RSUs to all employees. It seems more and more companies are trying to find ways to expand the equity offering to employees. It seems the Wall Street Journal has also taken notice of some of these efforts. In a recent article (Do Workers Want Shares or Cash?, October 27, 2015), the WSJ explored what do workers really want – stock or cash? The conclusion of the article seemed to be that stock is a tough sell. I’m not sure I fully agree. So in today’s blog, we’ll explore what’s on top? Shares or cash?

Value is in the Eye of the Beholder

Before I answer the question, we need to revisit the concept of perceived value. This, in my opinion, remains a widely underestimated component of truly comparing the merits of receiving cash over stock or vice versa. From the WSJ article, I gleaned some phrases that tell me that there is work to be done in elevating the perceived value of the equity plan. I read things like: [Employee X] “says his shares didn’t make him more likely to stay in his $60,000-a-year job, in part because he was unsure what his stake was worth.” Or, “‘Is this money real and am I really going to get it?’”

On the flip side, and I don’t have data to support it (someone should look into this!), there seem to be companies that have established, on a broad basis, that equity compensation has value – to the point where employees at all levels are requesting more of it. Interestingly, many of these companies offered broad based grants from the point of new hire. Do companies that offer broad based equity from hire do better at upping the perceived value of stock compensation? It’s hard to tell. Perhaps those companies are also more engaged in education and communication, two critical factors in raising the perceived value of equity awards.

From the WSJ article:

At MediaMath, a marketing software company, all employees—including customer-service reps and receptionists—are given stock options designed to equal the amount of their starting salary at the time the shares fully vest. Employees at all levels have requested more equity, and the company recently rolled out new performance incentives that include options.

“We would rather not have the haves and the have-nots,” chief people officer Peter Phelan says. The company is considering an IPO at some point in the future, a move that could bring windfalls for workers.

Online lender Avant Inc. is in the process of implementing policies giving hourly employees the chance to receive equity when they join the company as well as additional grants as part of an annual incentive program. Before, hourly employees were excluded from equity compensation. CEO Al Goldstein says he thinks it will take time before employees trust the perk is meaningful.

“I don’t think it’s a magical thing that happens right away,” he says. Of Avant employees who currently get equity, just 1% have left the company, according to Mr. Goldstein.

Which Wins? Cash or Stock?

Not all companies are valued the same, not all companies have the same stock growth potential, and stock compensation is not necessarily easy to understand if left to the employee to figure it out. For employees who are muddling through those considerations, stock can be a tough sell. Most people don’t want to give up cash to take on something they don’t understand. I think that’s where the key to answering the cash vs. stock question lies – it’s not necessarily that employees want only cash; I think in many cases they want both: cash and incentive compensation that they can understand and value.

Certainly cash may not be the top choice for every scenario. The same goes for stock. I think stock can absolutely be an easy sell to employees…if they are given the tools to appreciate what it means. Ultimately, companies need to pursue what works best for their employee demographics. For companies that are considering more broadly expanding equity programs in lieu of cash incentives, a key focus in mapping a strategic plan should include how to educate employees and raise the perception of the value of the award. And, to the point of one CEO mentioned above, if a company is expanding equity to a broader base of employees, it may take time for the employees to build up that perception of value. It may not magically happen overnight, but with a focus on supporting employees in their understanding and lots of persistence, companies can get there. So in my biased opinion, stock wins. After all, didn’t the turtle win the race?

-Jenn