By 2030, millennials will make up nearly half of the workforce¹. Many of these young employees are key talent for companies and have skills that are in high demand. Employers need to understand how to keep this group engaged—and designing better compensation and benefits plans is one area to consider. Millennials are more likely to work at companies that offer equity compensation plans and place higher importance on these plans compared to older generations.

That knowledge can help employers strike the right balance in designing equity plans that help attract employees, improve participation and foster company loyalty.

Rutgers University professors Dr. Bill Castellano and Dr. Joo Hun Han teamed up with research firm 8 Acre Perspective on an independent study for Morgan Stanley to identify the impact equity compensation has on employee engagement and motivation. Here are five key findings:

When employees participate in their company’s equity compensation program, overall employee engagement improves. Employees who participate in equity plans have greater satisfaction with their job and pay, and feel more personal ownership of their work compared to those who don’t participate, the study found.

Here’s something else interesting: Participation in an equity program, rather than the amount of equity owned by an employee, is what drives employee engagement.

The Bottom Line

The analysis predicts that when employees participate in their company’s equity compensation program, overall employee engagement will improve, on average, as follows:

Companies can capitalize on employees’ desire for a feeling of ownership in the workplace. Offering equity compensation alongside complementary programs—such as employee training, performance feedback, internal mobility and autonomy—can help boost these feelings of ownership, leading to higher employee satisfaction, engagement and commitment.

When it comes to equity compensation plans, millennials are both more interested in and place a higher importance on these programs compared to older generations. Younger employees are also more interested in accumulating equity in their company and, all things being equal, prefer equity to cash bonuses and incentives.

AVERAGE PREDICTED INCREASE IN OUTCOME ASSOCIATED WITH STOCK OPTIONS²

Millennials also stand out from older generations in their desire for a sense of ownership, a feeling that they have a stake in what happens at a company. Those who participate in a company’s equity compensation program are significantly more likely to say they feel this sense of ownership—that this is “my company.”

That can translate into higher levels of job and pay satisfaction and an increased commitment to company goals. On the other hand, companies that aren’t focusing on how to keep millennials engaged in these ways are more likely to lose them.

Also consider: Surveys show that millennials tend to be more stressed at work than older generations, with personal finances cited as a top concern. Building benefits packages that include not only equity compensation but financial wellness benefits, such as financial coaching, may put companies in a better position to retain these employees.

Men and women participate in stock option and performance-share programs equally. However, men tend to contribute to Restricted Stock Units (RSU) plans and Employee Stock Purchase Plans (ESPP) more often. Men also place a higher value in company equity programs and show preference and interest in accumulating equity compared to women.

While risk aversion might play a role, women not placing as much value in equity programs speaks to the need for women to have more education and support at work. After all, there’s a risk in not participating in equity plans too. With only modest wage growth over the years, and market fluctuations a concern, many employees don’t have enough retirement savings. Equity is one way employees can build wealth over the long term to help meet those needs.

Financial wellness and support programs can provide effective educational training tools and resources, as well as one-on-one guidance for women on how to accumulate equity, diversify their investment portfolios and plan for long-term financial goals.

By 2030, nearly two-thirds of the workforce will be under 50, in a hypercompetitive market, it’s critical to focus on these employees³. Now is the time to design the right combination of equity plans and complementary programs that will attract employees and drive engagement, loyalty and overall job satisfaction. Designing workplace benefits that cater to the different segments within an organization can help employers find the sweet spot across generational differences to improve participation in the company’s equity plan, drive retention and increase productivity.

Morgan Stanley at Work and a Morgan Stanley Financial Advisor can help you understand the options available to your organization and assist you in determining a course of action for your equity compensation plan.