Making Equity Compensation Plans More Inclusive for Women

 

Women are less likely to own stocks or join equity programs. Here’s how companies can make equity plans more inclusive and why it matters.

Compensation matters in building an engaged and committed workforce. Equity incentive programs such as employee stock ownership plans (ESOPs) and employee stock purchase plans (ESPPs) can be especially effective tools for helping employees achieve financial wellness—which supports a company’s recruitment, retention and reputational goals. But many workplaces still need to take steps to make these plans more inclusive for women.

Financial wellness solutions and equity compensation programs can play a key role in supporting women’s careers. And by making these plans more inclusive and broad-based, companies can benefit both their employees and their bottom line. Here’s a look at how women’s career paths differ from men’s, and how a well-structured equity compensation program can help women achieve financial wellness while supporting a company’s recruitment and retention efforts.

Women’s Careers: A Different Path

Women make up 47% of the U.S. workforce and earn more college and advanced degrees than men,1 but their career—particularly mid-career—experiences tend to be vastly different from those of their male counterparts. These differences impact women’s financial wellness, their overall career trajectory and their likelihood of participating in equity programs.

Let’s trace the hypothetical careers of Sarah and Michael.

Sarah and Michael have similar backgrounds, educations and career aspirations. They join the same company at the same entry level, where they earn the same pay and have access to the same benefits. Both are viewed as rising stars, and both advance quickly. At this point, Sarah and Michael are on an equal footing.

The divergence starts mid-career. They both find partners and start families. Sarah, like many women, decides to pause her career and take a few years out of the workforce to take care of her young family.2 When Sarah rejoins the workforce she secures a role that prioritizes flexibility (which often means less pay) to account for her caregiving responsibilities.2 In contrast, Michael does not exit the workforce or the organization and despite having a new family continues to advance in his career, earning higher pay, gaining access to benefits like equity compensation, and generally building greater amounts of wealth.

As both near the ends of their careers the cumulative impact of their mid-career differences means Sarah will likely have less saved for retirement—despite a longer life expectancy—than Michael.Throughout Sarah’s career she has probably carried higher levels of financial stress than Michael and will remain worried about her financial prospects as she enters retirement.4 Research from Financial Health Network shows that 62% of women experience financial stress, compared with 53% of men.5

While every woman’s experience is unique, Sarah’s remains all too typical despite the increased focus on strategies to recruit, retain and promote women. Unfortunately, women are less likely to own stocks or participate in equity programs.As in Sarah’s example, women tend to take time off during their careers to have children or prioritize flexibility over pay to account for caregiving duties. At the same time, the gender pay gap impacts lifetime career earnings (beyond taking time out of the workforce), and women tend to occupy professions and roles that are lower paid and may not offer equity-based compensation benefits.4

Financial Wellness Solutions Can Help

There are a number specificfinancial wellness approaches to help get women more engaged5, including easy access, simplified enrollment and a clearer explanations of benefits.Within the financial wellness umbrella, ESOPs, ESPPs and other forms of equity compensation are powerful tools for addressing some of these challenges.

In order to make their equity compensation plans more inclusive, businesses need to understand women’s career paths and take active steps to ensure equity participation rates are balanced. Corrections often start with transparency, education and an internal oversight body able to assess compensation plans and reset the career level and pay range when plans kick in. Creating a balance of men and women might require expanding the plans to lower levels, making shares available sooner, freezing rather than losing vesting time when taking a leave, or shifting to a broad-based ESPP that may be more inclusive than a standard ESOP.

Improved Plan Participation Helps Both Employees And Businesses

Moving towards inclusive, accessible and broad-based equity plans can significantly improve women’s financial wellness and benefit your company’s long-term bottom line. Here are three ways:

  • Higher Retention. While there is no perfect solution for recruiting, retaining and advancing women, equity compensation programs may help close that gap. Had Sarah’s organization offered a broad-based equity compensation program early in her career, she may not have left. Organizations with these types of programs tend to have less voluntary turnover and higher retention rates, including higher retention of women.7
  • Increased Retirement Savings and Improved Financial Security. On average, women have less saved for retirement than men but are expected to live longer.The potential shortfall of retirement savings can be a significant source of stress—and thus workplace distraction—for women. ESOPs and ESPPs may help alleviate that concern by generating higher savings, improving financial confidence and putting Sarah in a better position to meet her retirement goals.9
  • A Great Place to Work. Most businesses want to be known as a great place to work, because it attracts talent, helps retention and simply makes life at work better. Equity-based compensation can help support that goal. Employees with access to equity programs are more likely to report that their employer has a collaborative culture, that they are getting a fair share of compensation and that their company is an “excellent place to work.”

When Employees Thrive, Companies Benefit

Women face different career challenges than men, and appreciating these different paths is crucial to improving the recruitment and retention of women, as well as the reputation and productivity of the companies they work for. Morgan Stanley at Work is an industry-leading suite of workplace financial solutions built around the understanding that when employees thrive, companies benefit. Compensation plans that prioritize inclusivity are an important step in the robust, end-to-end approach to workplace financial wellness solutions that we offer.

Learn more about Morgan Stanley at Work, workplace solutions designed to evolve as your company does.

Connect with Us

Learn more how we can help your organization. Fill out the form below and a representative will get back to you.







All Fields Required

1 U.S. Bureau of Labor Statistics, “Labor Force Statistics from the Current Population Survey: Employment status of civilian noninstitutional population by age, sex, and race,” available at http://www.bls.gov/cps/cpsaat03.htm

2 Pew Research Center, “The Narrowing, but Persistent, Gender Gap in Pay.” accessed on June 16, 2020 (https://www.pewresearch.org/fact-tank/2019/03/22/gender-pay-gap-facts/)

3 Morgan Stanley, “Better for Employees, Better for Business: Supporting Financial Health for Millenials and Women in the Workplace” accessed June 17, 2020 (https://finhealthnetwork.org/research/millennials-and-women-in-the-workplace/)

4 HR Daily Advisor, “How Women’s Financial Wellness Is Affecting Retention Rates” accessed on June 17, 2020 (https://hrdailyadvisor.blr.com/2018/06/12/womens-financial-wellness-affecting-retention-rates/)

5 Financial Health Network by Greenwald & Associates, November & December 2018 (https://finhealthnetwork.org/research/millennials-and-women-in-the-workplace/)

6 Gallup, “What Percentage of Americans Own Stocks” accessed on June 18, 2020 (https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx)

7 Joseph Blasi Richard Freeman Douglas Kruse, “Do Broad‐based Employee Ownership, Profit Sharing and Stock Options Help the Best Firms Do Even Better?” accessed on June 18, 2020 (https://onlinelibrary.wiley.com/doi/abs/10.1111/bjir.12135)

8 CNBC, “With less savings and longer lifespan, women must take 4 key steps to shore up retirement” accessed on June 17 2020 (https://www.cnbc.com/2020/02/28/longer-lifespan-fueling-women-to-take-key-steps-to-shore-up-retirement.html)

9  NCEO, “S Corporation ESOPs and Retirement Security” accessed on June 30, 2020 (https://www.nceo.org/assets/pdf/articles/NCEO-S-ESOPs-Retirement-Dec-2018.pdf)

© 2020 Morgan Stanley Smith Barney LLC. Member SIPC.

CRC#3230929 (09/2020)