ESPPS are Inherently Worthless
This is the fourth and final article in the ESPP in a Volatile Market series. In the first three articles the focus was on ESPP in a volatile or down market. In each article the importance of employee communication was stressed but was not the focus of the article. This final article of the series will highlight the incredible importance of communication.
ESPPs have no inherent value. Their value is created by employees’ understanding of the program (or their perceptions). This important fact means that simply having an ESPP is, alone, of very little value to employees. You must be willing and able to educate your employees about the ESPP if you want to have an effective plan with positive participation.
At the end of the day an equity program is only as good as the communications that accompany it. If a company does not put time, effort, and resources into its communication plan then that company is wasting time, effort, and money in granting equity. This is the simple truth. Consider for a moment the employee that has never received equity before. Will this employee know what they’ve received and how to maximize value from the grant? If the grant comes with a thorough education and communications plan, then the answer is yes. If they just receive the grant with no equity-related education, then the company and employee are almost certainly not maximizing the intended value of the awards.
Let’s look at a couple of examples. First, YourCo hires a new engineer, Preeta, who just graduated from college. Preeta took engineering classes but was never offered a class in total rewards or equity compensation. When Preeta began working and attended new hire orientation the ESPP was mentioned, and she was told how to enroll but the training did not include advantages of an ESPP or how it creates leveraged value, therefore Preeta did not feel the need to enroll.
In our second example, AnotherCo promotes a warehouse worker, Donte, to a warehouse manager. However, AnotherCo strongly believes in providing education about equity. When Donte was first hired, he attended a two-hour class that fully explains the company ESPP and was given access to some short follow-up videos. Donte now understands can take his gain at the time of purchase or hold the shares and receive a tax benefit. The company also provides individuals who have been granted equity for the first time with the opportunity to meet with a financial planner and tax advisor. Donte knows the value of the company ESPP and, with his promotion, can increase his contributions in the plan and their impact on his pay.
Another reason to provide in-depth education and communications is retention. If employees do not realize the advantages of the company ESPP they are not likely to participate. Most companies have great talent that they want to keep around for the long-term. To help accomplish this, the stickier the equity offered the better. Explaining building understanding in the value of participating in ESPP especially if the plan offers a 15% discount and lookback can be an efficient way to improve retention.
What does an in-depth employee education and communication plan look like, it is multi prong and designed to meet the needs of different learning styles and attention spans. Francisco Serrano, CEO and president of 121 Global Branding and author of Brain-Ding The Strategy: A successful marketing plan has to include brain-ding as the ultimate strategy, says that he’s built his company on the principles needed
to reach Generation Z: Reach them fast, provide instant gratification, be relevant and engaging. If this works for marketing, we need to follow the same principles for education. But compensation education programs can be delivered in smaller bites of 10 to 15 minutes and employees can learn at their own speed. This is likely to boost both attendance and deliver higher understanding among the Millennial and Gen Z employees. Delivering the same information all at once or in two parts will fit better with your Baby Boomers or Gen X group. You can use the same communication but deliver it differently.
While web recordings work best for education in small bites it can be argued that in-person training is the best tool for complex topics like personal compensation impact or taxation. Being able to see the faces of your audience gives you the opportunity to determine if everyone is understanding the material or if additional clarification may be required in real time.
We know that internal experts seldom have the time, communications expertise, or bandwidth to develop education for multiple demographics. A success and holistic education and communications strategy can take a great deal of time and expertise. At FutureSense, developing custom designed education is a specialty. If you would like to discuss how to best educate your employees on equity please give us a call, we would be happy to speak with you.
About FutureSense
FutureSense is a management consulting firm that provides integrated solutions to build and sustain human capital capacity. The firm can work with you by offering support and guidance to manage your workforce. To learn more about FutureSense, please visit FutureSense.com.