Stock Benefit Plans: A Perk not a Payment
Stock benefit plans were first popularized during the .com boom of the 1990s. Initially, they offered a way for start-ups to keep salaries low while still offering competitive compensation packages. While a lot has changed since the .com boom, stock benefit plans can be the right call for some organizations. Whether your is a small organization looking to inspire growth or a larger public corporation looking to provide incentive, offering a stock benefit plan may be a way to inspire productivity and help your employees feel more connected to organizational success.
A stock benefit plan can be offered in a few ways. Some organizations offer stock grants as a reward for years of service, or in place of a bonus, while others offer employees the ability to buy stock at a lower-than-market value. This can offer employees the opportunity to feel invested in the success of their organization and when they collectively do well, employees directly reap the benefits of increased stock prices. In addition, providing this benefit can inspire greater employee retention. Some organizations offering these benefits only allow stocks to be vested or sold after an employee has reached a certain number of years with the company.
While it can be a good option, we suggest weighing the pros and cons of stock benefit plans before offering them to your employees. Offering stock benefit plans can create a connection between your employees and the overall success of the organization. Employees may feel more connected to the success of the company and their co-workers. In addition, it can increase retention and help with recruitment. While this benefit is no substitute for a competitive salary, it can make an offer more attractive and give new employees a way to make a long term investment in their company, without going through a stockbroker.
The benefit of offering a stock benefit plan is that it can be great for small businesses that are anticipating growth or for larger corporations that want additional employee involvement. That said, they are not without cons. Stock benefit plans can have complicated tax implications for employees, and, as with any new plan, your organization will need to prepare to educate and guide your employees. In addition, stock can be difficult to put a monetary value on. While these plans may offer incentive, it is difficult to say how much and often they can be seen as having a high level of compensation for executives regardless of performance. Finally, while these plans can bring employees together, the collective nature of this “bonus” can put stress on a team. One individual is reliant on the output of their team, and entire organization, for a substantial bonus, which can lead to a lack of productivity.
When looking at stock benefit plans as an option for your organization, the key is doing your research. Know the local, state, and federal legislation that impacts providing stock to employees, and the potential implications the benefits may have for your employees. Be prepared with adequate education and information for employees surrounding stock ownership and taxation. Lastly, remember not to use stock benefit plans as an alternative to a competitive salary. While stock may make a compensation package more enticing, they do not take the place of a fair and competitive salary.