How to Be a Better Equity Plan Sponsor to Black, Indigenous and People of Color (BIPOC) Employees
Whether launching a new equity compensation plan or evaluating your company’s existing plan, here’s how to help optimize success for BIPOC employees.
All businesses want to hire the best and brightest employees, but do organizations feel confident in their ability to attract and keep great talent? Companies want to be equal-opportunity but do their managers or senior leaders think they can effectively engage people from every demographic? A diverse workforce can be a driver for success in the workplace.1
Diversity, Equity and Inclusion (DEI) programs illustrate the right thing to do and the “liberty and justice for all” American Way, but these initiatives also present the irrefutable business case for diversity in the workplace. The recent McKinsey & Company report, Diversity wins: How inclusion matters, reveals that “diverse companies are now more likely than ever to outperform less diverse peers on profitability.”2
The secret sauce that achieves results: inclusion, the third, but often most important letter of DEI. Inclusive business cultures give culturally diverse workforces the foundation needed to support each individual’s strengths, synchronization and sentiments. Theoretical ideas of employee satisfaction and appreciation have given way to tangible proof and rigorous best practices that illustrate an employer’s value proposition for every employee. More organizations are providing a broad range of employees with equity compensation benefits, rather than simply offering them to management and executive teams. But how do you leverage the advantage of equity compensation for every eligible employee? When companies offer equity compensation, many BIPOC employees often report not being adequately briefed on the benefit. Offering a benefit to employees is not enough without educating employees and encouraging them to take advantage of it. Here’s a step-by-step plan to help employees take action and get the most out of an equity compensation plan.
The simpler the communication strategy for your equity incentive plan, the more successful your enrollment may be.
Employees whose companies launch new initiatives with clarity, transparency and detail are better positioned to thrive.3 According to the Academy of Innovate HR (AIHR), “People want to be led with straightforward instructions. Uncertainty and lack of direction are often sources of frustration in the workplace—the better the employer rollout, the better employee participation.”
Beware of the thin line between guidance and gloss-over when promoting company-sponsored benefits. For employees, the rollout of an equity plan can be a slippery slope from information to inundation and intimidation. Behavioral research has shown that people have difficulty making decisions when facing information overload.4
Implementing any new strategy carries a high risk of failure even for the most well-intentioned executives. “One reason many implementation efforts fail is that they usually require changing people’s habits. We often resist change unless it is crystal clear that the alternative is substantially better,” writes London Business School professor Freek Vermeulen.5
Remember that no one wants to be forced into plans any more than they want to be alienated from them.
Wealth disparities among diverse communities in America can strongly influence the financial priorities of your employees. For example, many Black workers have to think proactively about building “generational wealth” to combat the disadvantaged outcomes wealth gaps often yield.6
Giving BIPOC employees access to equity awards can ultimately help to drive more significant financial security and advancement opportunities. Research shows that equity compensation can make up 27% of an individual’s net worth. When a person of color increases their net worth, it may help eliminate years-long historic disparities by bolstering their financial position as a transmitter of intergenerational wealth within their family.
But make no mistake: Access to equity compensation is just one component of an ideal workplace for BIPOC employees and does not substitute for ensuring equitable pay standards. An environment that offers equal pay, performance recognition and advancement opportunities would be the goal to strive for in any organization. So, let’s consider that when pay disparity data is adjusted to account for similar education and experience levels, compared to every dollar earned by white men, Black men receive 98 cents and Black women receive only 97 cents.7
Only when considered within the proper context can equity compensation plans contribute toward long-term employment. According to Rutgers University, employees paid less than the market norm and offered equity benefits are just as dissatisfied, un-committed and unmotivated as those who don’t receive equity benefits. When salaries are too low, equity compensation does nothing to improve employees' impressions of their job or their pleasure with it.
Your workers need the essentials—salient points, not subjective persuasion. Support employees with resources to understand the rewards and risks of investment, learn any recurring terms8 in the plan’s literature, understand the tax impact of their equity compensation benefits, or know where to go for help. Bonus points if you give them a checklist. Think key messages, proof points and important dates.
At the end of the day, many workers want employers to provide access to essential information and financial learnings that help them make the most of their equity awards.
Avoid presumptive language about company value and financial prospects. Forgo any qualitative reasoning about why employees should participate in the plans and give the facts. 96% of HR leaders recognize their company needs to do a better job helping employees understand how to maximize their financial benefits.
Have widely accessible and clearly defined process for participating. Outlining the scope, schedule and scale of equity compensation can help employees fully comprehend the benefit’s financial opportunities and feel confident about the employer’s intentions for making the offering available.
Remember that implementation and inclusion aren’t one and the same. While BIPOC workers may report lower participation in equity plans than white employees, that doesn’t mean the programs are somehow less attractive to them.
This is another point where financial education served up through a coordinated communications plan can help your employees to understand the link between plan participation and their financial goals. The details of materials made available can help to motivate people to raise their hand to ask questions and with increased financial literacy, might inspire employees to enroll in the companies’ equity compensation plan.
If executed properly, your plan can ultimately support the company's long-term goals through an emphasis on mutual success. Identify several critical moments in the employee lifecycle (e.g., one-on-ones, daily standups, performance reviews) when you can customize messaging about the program's potential opportunities and importance for individual employees. Encourage company officials to highlight the program in speeches and media appearances with more extensive and diverse audiences.
Discuss the program with the leadership team to ensure that they understand how it fits into the company’s overall plan. Explain who participates in the program and why it is crucial to the company's overall success to track participation intersectionally. Explain how the program supports the company's commitment to inclusivity and other values.
With the increase in DEI initiatives over the past several years, many employers have been turning to Employee Resource Groups (ERGs) as their source of sharing best practices, lessons learned and activity updates.
Also, keep employees informed about the company’s continued due diligence as the equity plan sponsor. Use department meetings or company all-hands to regularly report on the company’s valuation and discuss unique insights, such as increases in participation.
Comprehensive and customized equity compensation education can empower employees to redraw the horizons of their financial futures with renewed optimism. A Morgan Stanley Relationship Manager is here to talk to you anytime about equity plan education and workplace financial benefits.