The Hidden ROI of Employee Stock Plans: It's more important than you think.
It's no secret that employee stock plans are a powerful way to give employees a stake in the company's success. Whether employees can buy stock through an Employee Stock Purchase Plan (ESPP) or you grant restricted stock units (RSUs) or stock options during their employment, employee stock plans can be a magnet for attracting top talent and creating a path for employees' financial growth. The best news? Offering these plans can deliver a strong return on investment (ROI) for your business that you may not even realize was hidden there all along. Let's take a look at the ROI of stock plans and how to measure it in ways your executive team will find compelling.
But first, let's talk about what ROI really means.
A strategic investment in your people and growth.
Offering stock-based compensation can be a cost to your company, no question. But that investment can deliver a quantifiable return. Here's some data to support this:
- Retention: 91% of employees surveyed said they would feel more invested in staying at their company if it offered financial benefits that met their specific needs.1
- Motivation: 46% of HR leaders say equity compensation is a highly effective way to motivate and engage employees. And 48% of employees agree.1
- Productivity: When employees have a financial stake in the company, their interests align with those of the shareholders, which motivates them to work toward common goals and drives overall productivity.2
With this understanding of how offering stock-based compensation can be a smart investment in the culture and growth of your company, let's dig deeper into how equity and stock compensation plans appeal to employees and how to measure the return on your investment.
Why equity works.
For starters, equity aligns interests. When your employees are part owners of the business, they start thinking differently. The company's success becomes their success. You may find that employees develop a deeper commitment to the company goals and make smarter decisions. Quite simply, with equity involved, everyone has a vested interest in doing well.
Here's how your company could see a positive, or even unexpected, ROI by offering an employee stock plan:
Recruitment: Rise above the noise.
Even in an economy that has a lot of job seekers, you still want the best candidates for your open positions, especially at the management level. Salaries alone are not going to win those prospects. And while benefits like health insurance and gym memberships are important, demonstrating that you're looking out for your employees' financial future might just be the magnet that wins. Equity can be the differentiator.
- Start-ups and high-growth companies: Equity is often the most compelling part of the compensation package. This is especially true for early hires who want to get in from the start and grow with the company.
- Public companies: ESPPs and RSUs reflect a culture of inclusion and a genuine interest in employees and their families.
Measuring it: How will you know if equity is helping? Monitor offer acceptance rates for roles that include equity vs. those that don't. Asking new employees what they liked about the job offer and their reasons for accepting it can provide valuable insights into the effectiveness of equity and other things.
Accountability: Think like an owner. Act like an owner.
Ownership drives accountability. And accountability helps employees begin to take ownership of their financial lives. Business leaders often think to themselves, "I wish my staff thought about this the same way I do." When employees feel ownership, they feel more accountable for working toward success—their own and the company's. They begin to think like owners. This shift in mindset can lead to their making more cost-conscious decisions (looking for ways to save money), strengthened collaboration, and increased motivation to innovate in order to maintain market leadership.
The reality is that equity turns a job into a mission. That's hard to fake and even harder to replicate with salary alone.
Measuring it: The best way to measure this is by engagement and performance. After surveying employees about their understanding of equity, compare the engagement and performance scores of equity holders to the scores of non-holders. You might even notice that employees with a larger equity stake perform at the highest level and are the most engaged.
Retention: Hanging on to the good ones.
Your equity vesting schedules are more than just a timeline—they're a built-in retention tool. It's no surprise that employees still waiting for their equity to vest are more likely to stay. But it's not about being "locked in." Employees will truly be invested in the company's success because they understand there will be a reward for them, and not only for the top executives.
- Equity contributes to a greater sense of ownership.
- Equity keeps good employees even more motivated because they care about the outcome.
Measuring it: Compare turnover rates among employees with equity vs. those without. You can also analyze average tenure by equity value at the time of hire and/or exit. Higher equity often correlates with longer tenure and deeper commitment.
Final things to remember about employee stock plans.
As explained earlier, employee stock plans are a powerful motivator for your employees. However, equity should be considered an engagement tool, not just a line item. To really achieve the return on investment in terms of retention, motivation, and productivity, we believe communication and education are critical. If your company is offering a stock plan, these strategies are important for ensuring you get the best return.
- Explain how it works: During the onboarding period explain what the stock plan means, how it benefits the employee, and how to maximize the benefit. The legalese associated with many plans often just confuses recipients. Continuing education and presentations reinforce the value of the plan.
- Celebrate vesting milestones: This reminds the employee of what they have achieved and reinforces progress. It also highlights the upside without overpromising.
- Make it part of the culture: A stock plan is more than just compensation; it's a reflection of the culture. It reminds the employee that they're a true part of the company's success.
Equity is an invitation.
Investing in stock-based compensation is a smart move, especially for attracting and retaining talent, motivating your teams, and creating an "ownership culture." At its core, offering equity is saying,
"We want you to grow with us. This isn't just a job; we want you to build something with us."
Companies that embrace employee stock plans, structurally and strategically, reap the rewards in talent, performance, and growth. The ROI is real. You only have to dig a little deeper to see it.