Equity compensation now: trends you need to know

Lauren Jenkins: Welcome to Prosperity at Work from JP Morgan Workplace Solutions. I’m Lauren Jenkin and I’m joined today by Jorge Martin, Ryan Shreero, Jackson Vaught and finally, Nancy Romanyshyn, Senior Director, Total Reward Strategy and Solutions at Syndio. In today’s session we’ll be diving into the findings of our 2024 Trends in Equity Compensation Report to lift the lid on the current state of equity programs around the world. Our 2024 Trends in Equity Compensation Report is available to download now, click on the link below or visit our website @globalshares.com we surveyed more than 200 equity compensation professionals from companies and industries around the globe to gain insights and get a better understanding of the challenges and opportunities they’re currently facing. Our survey’s findings make it clear that equity plans are broadly seen as a tool for ensuring future business success and strengthening the relationship between the worker and the company.

Lauren Jenkins: Equity compensation continues to be the foundation of talent management strategies. There’s no such thing as a one size fits all stock plan. Each must be designed with business goals, employee needs and even demographics in mind. Now let’s hear from Jorge Martin, Head of North America Equity Plan services here at JP Morgan Workplace Solutions. Jorge, can you speak on the incentives for companies to offer share plans and what this means for their business?

Jorge Martin: Hi Lauren, thanks for having me. And I think really it allows an alignment between the employees and the overall corporate goals that have been established. And so when the company is successful, the employees see themselves as successful and they’re engaging and they are also contributing to the success of the company. And just as importantly, they’re getting rewarded for the success of the company as well. So it creates this really nice holistic compensation plan that really neatly aligns shareholder goals with employee goals and company goals as well.

Lauren Jenkins: What are the benefits of offering equity to all employees and not just executives?

Jorge Martin: It really allows you to have the entire employee population contribute again to the corporate goals and it really creates that sense of ownership not just for the executives, but even for entry level employees as well. And something as simple as allowing them to participate in an employee stock purchase plan allows them to see the benefit of them working, getting the shares in their ESPV, and then also they get to see the benefit that they get when they have those shares deposited and then ultimately when they sell those shares for a profit too.

Lauren Jenkins: What would you say are the pain points of operating share plans and how do you solve them?

Jorge Martin: The biggest pain points I think are communication. And so how do you communicate to an employee the benefit that you have given them? Salary is fairly easy for them to understand. But then when you start granting options or restricted stock and then you have to explain to them what a best schedule means, a taxation around those equity instruments, it becomes much more complicated to explain that to these employees. And so I think education is a really key area where companies need to focus when they’re offering equity to all employees. I would argue that even for executives, and I think some of my peers here who work with executives on a day to day basis can attest to the fact that some of them also have a lot of questions around equity despite the level of their company. So really that level of education is important and it’s not a one and done. It is consistently offering them different avenues to gain that education at Grant, at Vest, at Sail. Those are all really, really important. And then I would also add that the most important thing here is to try to keep your plan as simple as possible.

Jorge Martin: There were over the course of the last decade or so a lot of very unique, exotic plans put out. The more exotic that plan, the harder it is for you to tie the benefit that the employee is getting with the success of the corporation and the more you need to consistently educate about the benefit. So really keeping it as simple as possible and not allowing a consultant necessarily to come in and then offer you a very unique plan that’s gonna take you a long time to tie those benefits to those employees as well.

Lauren Jenkins: We know that equity compensation is a very powerful tool to combat attrition. Losing senior people to competitors can be a major cause of concern. Disruption to plans, loss of knowledge, skills, leadership and continuity all impacted. Not to mention the costs of then trying to recruit suitable replacements. Next, let’s hear from Ryan Shreero, Restricted Stock Group at JP Morgan Private Bank. Ryan, what are some of the current trends and key challenges you’re seeing in structuring executive compensation amid today’s economic and regulatory landscape?

Ryan Shreero: Hi Lauren, thanks so much. Yeah, we’re really seeing more of everything. So more equity based compensation at all levels of company employees. So from rank and file all the way up through the C Suite, a lot of these work, you know, originally designed for C suite individuals, but it’s really, it’s just more and more becoming an equity comp based program across all different levels of employees at companies. There’s also a lot more choices available to them where there’s things out there called cafeteria plans, where employees have the ability and mostly officers, but a lot of employees and officers will have the ability to kind of choose what kind of equity comp they want, whether it’s performance units or restricted stock units or just a traditional stock options and sort of lastly, we’re seeing much more complexity from the regulators when it comes to equity compensation. Seeing regulators come in a little over a year ago and change the cooling off periods for trading plans, extending those from just a few days to 30 days to 90 days. We’re seeing trade parameters being scrutinized when it comes to single trade plans as opposed to multifaceted plans that extend over different time periods.

Ryan Shreero: And additionally on the issuer side, we’re seeing a lot of complexity coming in with disclosures of who has a plan and when are they supposed to tell the public that they have a plan in place. So more of all equity coming in and also more rules and regulations and nuances that we need to pay attention to.

Lauren Jenkins: In the report you mentioned, it’s time to move beyond the golden handcuffs. Can you talk a bit about the add ons, enhancements and additional benefits that companies can use to customize their rewards package for executives so that they can stand out from competitors?

Ryan Shreero: Sure, yeah. I think it’s important to kind of refresh like what the goal of equity compensation is in the first place. And let’s remember our goal is to attract key talent, to retain that key talent and to inspire that key talent. Ultimately helping a company maximize their ROI on their equity comp platform. How do you go about maximizing your ROI? How do you go about maximizing every dollar spent that a company uses to incentivize employees? And I think a great way to do that is to help all the participants, every employee at a company that’s receiving equity comp to have a positive experience. And they can have a positive experience through education, through advice. And ultimately the education and advice helps them maximize every dollar that the company spends that actually will land in their pocket as well. So for example, if you have an incentive stock option that would have preferential tax treatment, but without any advice or education, you just go into the market and sell it all at once. It gets treated as a non qualified stock option, nullifying the preferential tax treatment for long term capital gains. That’s something through advice and education we can try to avoid and help participants and employees to maximize that and plan for that appropriately.

Lauren Jenkins: And finally, Ryan, how are recent SEC amendments and other regulatory changes impacting the design and use of 10b5-1 plans?

Ryan Shreero: Yeah, good question. Really more planning is needed going into these plans. There is so much more that we need to be aware of going into a plan and so much more we need to plan for when it comes to a 91 day cooling off period or trades going in the 91st day. So these are three months that they cool off. Now there’s a lot that goes into that. So you gotta go beyond the date. The three tenants, the original three tenants of any sort of a trading plan that you might be putting in place for an employee would be date, amount and price. You gotta go way beyond that. And you gotta think about Rule 10b5-1 and putting plans in place that really consider grants, the vesting schedules that they have, the tax lots that they’re tackling, the different holding periods again for the ISOs versus the non qualified stock options. Whether you’re putting in a trade during an open window period or you’re building a 10b5-1 plan, and if you are building a 10B5-1 plan, is that a single trade plan which are only allowed one per year or is it across different time periods within the plan? And then I would say ultimately timing of the next plan that you hope to put in place.

Ryan Shreero: Does your plan expire during another open window so you can put another plan in place? These are all things that if you work through a company that will help you with advice and education, you can sort of navigate through. But I think ultimately you wouldn’t want to hike Everest without a mountaineer guide, nor would you. You want to do any of these sort of things without sort of a financial professional helping you along the way and a tax professional helping you along the way. ‘Cause if it’s done right, it can be very beneficial both for the individual and the company.

Lauren Jenkins: There’s clearly a lot of value in offering Equity Compensation to your workforce. Of course, that doesn’t come without its challenges. Our survey found some common pitfalls when it comes to the introduction and running of an Equity Compensation Program. Are under promoting the plan to participants, losing sight of the target audience and not knowing how to measure success. Next we’ll turn it over to you. Jackson Vaught, head of Reinvestment Strategy and participant engagement Equity Plan Services here at JP Morgan Workplace Solutions. Jackson, what are the reasons employees, including executives, might not make full use of their plans?

Jackson Vaught: People don’t make full use of their plans for a lot of different reasons. But I think you can kind of, generally speaking, boil it into a lack of one of three things. I think the first and probably most important piece that might be lacking is just a general lack of communication. Equity plans, as my colleagues Jorge and Ryan have already touched on, can be very complex and are only becoming more complex as the industry evolves in certain cases. And so ensuring that you’re communicating exactly what’s going on with that plan regularly and effectively is frankly a very tough nut to crack that very few companies do very, very well. So that lack of communication is one thing that can oftentimes be missing. The second thing that’s oftentimes lacking is a lack of perceived value by the employee. And I think that, I know in your question you called out executives specifically. And I think oftentimes people make the mistake of assuming that just because someone is an executive and might have a higher wealth profile, they have a higher degree of financial acumen. And I can assure you that that is not always the case. I see some of my colleagues smiling ’cause they have certainly witnessed this as well.

Jackson Vaught: But in all seriousness, you can never assume that just because someone has on paper a lot of money that they necessarily what to do that they know what to do with that amount of money. People don’t value what they don’t understand. And so if you’re not explaining it to them effectively, they’re not going to take advantage of it. And the third bucket, the third thing that’s oftentimes lacking is just a general sense of long term planning. People, generally speaking, think very, very short term with their money. They’re trying to achieve that next kind of big thing in their to do list, whether it be, you know, a boat or a trip or sending a kid to college. But that’s why we believe at JP Morgan it’s incredibly important. And where we feel like we can plug that hole with our financial advisors is closing that gap and lack of understanding. I’ll use Ryan’s reference. You certainly do not want to climb Everest without a guide. And so we feel like our financial advisors here can help be that guide. Not just solving the long term planning piece, but also solving that lack of perceived value as well as the lack of communication that folks may experience.

Lauren Jenkins: Communicating with employees was cited as an issue by almost half of respondents, 47% ranking it as the second biggest pain point for companies when it comes to managing a plan. What are the best practices for accommodating different learning Styles to effectively educate a diverse and global workforce?

Jackson Vaught: That’s a great question. And again, as I hit on communications becomes even more challenging as we evolve in society, I think that I’ll confess my Gmail right now has well over 50,000 unread messages in there. I doubt I’m alone in that. And what that really shows you is that it is we live in an information overload age, right? And so we have to be very thoughtful. And what we try to do here at Workplace Solutions is be very thoughtful with our clients. And how do you communicate effectively during those key moments that matter where people are actually going to listen to you? And doing that with an ever globalizing, multi generational workforce just makes it that much harder. But generally speaking, I think three best practices that anyone can adapt and implement pretty immediately are first, one, look at the types of channels that you’re communicating to your employees. Email is not always the answer. I think email is oftentimes an easy answer. But there are many other levers you can pull to communicate with your population, Whether it be webinars and seminars like what we’re doing today, whether it be leveraging more modern technologies like chatbots, or again, depending upon your workforce and your employees, maybe more traditional things like posters and printed materials.

Jackson Vaught: I’ve seen all of it work very, very effectively based on the profile of the company and the profile of the employee. The next kind of best practice, I would say, is you definitely want to make sure that your communication plan, while scalable for the size of your company, does have those more localized elements. So this is where knowing your audience, knowing your employee base is really important. A really, really easy thing that you can do to localize your communication strategy is to take advantage of time zones. So if you have a global workforce, taking your emails and splitting them into maybe three different buckets rather than one, send one during APAC business hours for your Asia Pacific employees, one during EMEA business hours for your European employees, and one during North American business hours for those employees. I guarantee you you’ll see an uptick in engagement with whatever you’re doing. And then finally, you want to make sure that you have a technology platform that allows you to make again while creating a plan that’s scalable, making your communications feel personalized. And so that’s taking advantage of things like putting somebody’s first name in the subject line of an email or making sure that the links that are embedded in an email are personalized to that person and things that they can access.

Jackson Vaught: So those are things that everyone should be able to take advantage of, or I hope everyone can take advantage of in 2025. And if those aren’t things that you are thinking about, I highly recommend you start thinking about them. And I guarantee you you’ll see an uptick in engagement with your global workforce.

Lauren Jenkins: You touched on this a bit with your last answer, but what would you say are the biggest challenges companies face in managing share plans for a multi generational workforce?

Jackson Vaught: I would say different generations communicate in different ways, just like people in different geographies communicate in different ways. I’ll self recognize as a millennial. I don’t want you to call me, I want you to email me. Phone calls are scary. And again, I’m probably not the only millennial that feels that way. But for older generations, they want a phone call, they want to interact with a human in that way. And again, having a strategy that adapts to those kind of, generally speaking, generational trends is really important. I remember very early in my career in this industry, I was working with a company that was having trouble reaching a former employee that had options in the money. And it was a lot of money. And they were not responding to our emails. And so a very long story made short. We were able to contact this individual via phone and let them know that they had a very sizable option getting ready to expire. And this person was able to take that money and put the down payment on a retirement home. And I think that’s amazing like that’s why I get excited to work in this industry, because I really do feel like we have the ability to make a difference in people’s lives.

Jackson Vaught: And so I share that story because again, this was an older person who hadn’t updated their email address, wasn’t really staying on top of things maybe, as we would assume they would. And so again, just catering your communication styles to different generations is important. Another thing that I think is important as well, not just in the ways you communicate with different generations. Leveraging different tools, like phone, for example, for, for maybe older people, but also emphasizing different aspects of why you have equity compensation in the first place can really be effective for different generations. So for example, for someone who’s younger, just starting out in their career, maybe getting equity for the first time, really doubling down on the fact that you use equity as a tool to keep them, a retention strategy is really, really going to resonate with someone, let’s say under the age of 35 versus if you’re communicating about your equity plan to someone who’s a little closer to retirement and is going to leverage this directly as part of their retirement plan. That is where you should be emphasizing your key messaging when you’re talking to them about taking advantage of their plan.

Jackson Vaught: And then the last thing that I would say is be wary of the changes in the regulatory environment. Ryan already hit on this. But the regulatory environment in this space has changed a lot in the last 10, 20 years, even a lot in the last few years. And so people that are older, that may have had equity longer, more simple plans for longer, may not be aware of the changes that have recently happened in our industry. And so making sure that that information is being communicated directly to participants, particularly people that may have had equity longer and aren’t used to the new way that things are, is incredibly important.

Lauren Jenkins: Next we’ll hear from Nancy Romanyshyn, senior director, Total Rewards Strategy and Solutions at Syndio. Nancy, as we look to 2025 and what might lie ahead, what trends do you see emerging around pay transparency?

Nancy Romanyshyn: Well, I think it’s a lot of the things we’ve been hearing about throughout, which to me, if I had to sum up, there’s a big difference between what you design and then what you actually do in practice. And that difference is really coming to the forefront with pay transparency. So I think when I think about 2023, that was when we were first realizing, oh, my gosh, this is real. And then Last year, over 2024, I spoke with hundreds of Total Rewards leaders. And depending on their footprints, you could see everybody sort of grappling with how are we going to operationalize this? There’s so many differences going on across different jurisdictions. So depending on their footprint, they’re moving slowly and preparing. But a lot of them were trying to activate leadership, I would say, this past year, around their plans and really what are becoming global transparency initiatives, I would say. So this is the year, I would say 2025 is the year of taking action. Folks are starting to activate these plans.

Lauren Jenkins: They’re conducting the analytics they need to prepare and quite honestly refine the rewards program. So some of the things we were just hearing around design implications, the way the regulatory environment has changed is really having folks sort of reconsider maybe what it is that they’re doing and then also getting this feedback where we’re seeing some designs, you know, if they’re, they’re not being utilized, is it because of lack of communication? What can we do to ramp up and improve that? What are ways that we can really meet our employees where they are so scaling, training and communications.

Nancy Romanyshyn: Especially so the people leading the employees can have the conversations as well as the employees themselves can really understand and take advantage of their rewards programs. Those I think we’re really going to be seeing ramp up over the course of this year. And then I would say in terms of regulatory environment too, but it has much broader implications is the EU Pay Transparency Directive. So I would say out of all of the legislation we’ve seen so far, we have never seen something like this. It is far reaching. It impacts. If you, even if you are a US company with employees in the EU, you’re going to have to do pay equity analysis, you’re going to have to do pay gap analysis and reporting, you’re going to have to have pay transparency and career transparency. There’s a right to information component. And when we talk about pay, they’re interpreting pay to be very broad. It’s all forms of remuneration. So it includes equity, it includes allowances, benefits. So there’s a huge wave of requirements that are coming. And this too we’re seeing companies are really realizing that pay transparency is kind of, it’s the sum is greater than its parts is the way I like to think about it.

Nancy Romanyshyn: It’s truly a company wide initiative requiring multiple work streams across different areas of your organization. So being prepared to look critically at your programs and then being able to explain them in a variety of ways, that’s really what we’re seeing taking place, I would say, for this next year.

Lauren Jenkins: And for what has taken place with pay transparency to date. Have you observed it playing a role in employee retention?

Nancy Romanyshyn: Oh, absolutely. And I think it goes too to communication styles and I think just the information that everybody has access to right now. So it’s been, I think, really interesting with all the information that is available to employees. Now you’re seeing, I like to joke that employees are compensation analysts ’cause they’re doing their own research and they can look online and they can pretty much find information about any component of their pay. So to be transparent, coming out in front of those say, stories that might be… Being told either about your organization or about their role and what they should be paid, it’s really important for employers to come out ahead of that and to really explain fully, here’s the whole package of what you have. Here are all the benefits to this. Let me make this real for you in a variety of different ways. I mean, employees are really, I mean, all you have to do is actually go on Instagram and look up pay transparency or negotiating my salary or any of that. You’re gonna see a lot of people posting and giving great advice about what are the things you should be asking for and the questions you should be asking.

Nancy Romanyshyn: And they’re not wrong. It’s just that they’re not talking about your company. So I think it’s really important that you as the employer should say, this is why we’ve built what we’ve built. Here’s the program, this is what it offers you. Here are the success stories. I love the story that you just shared around this is what this employee was able to do with this. I think making it real for folks like that and thinking about communicating in ways that again, just sort of meet them where they are. Honestly, those are the things that have been effective in terms of retention. Because employees, at the end of the day, they really just want to know that they’re paid fairly, they don’t need to be paid the most. They want to understand, though, that you have a consistent process, that you can be transparent about understanding fully what it is that you’re giving them in terms of rewards. I joke too, that they’re rewards. They’re supposed to be rewarding. That’s an important thing to just kind of remember. Just put them at the center and think about what are the questions that they want to know. How can we show how much we value them? ‘Cause that’s what you’re communicating with your total rewards programs.

Lauren Jenkins: And to expand on that a bit further, as we see these disclosure laws taking effect, what role do you see companies playing in anticipating and addressing employees questions and handling their concerns around pay transparency?

Nancy Romanyshyn: I think the moment to start is now or yesterday, I should say. But yeah, I think companies are uncomfortable. Quite honestly, a lot of folks in leadership are not comfortable speaking as openly about pay, and they’re going to have to get used to that. And the important thing would be to really analyze what you have. And when I say analyze, I think go deep. So it is really about looking at different groups of employees across different jurisdictions to really have a good solid understanding of how their compensation is truly playing out for them. Understanding that and then looking critically to say, are these programs designed in a way that they’re doing what they’re intended? What are refinements that we potentially need to build in here? How can we execute this in a way that we’re probably going to have to do a transition from what we’re doing today to what we’re going to need to do tomorrow? And how do we do that smoothly? How do we bring employees along in that conversation? Those are the types of decisions that are happening now. Because I think what folks need to expect is that every component of pay is going to be transparent.

Nancy Romanyshyn: So if there are inconsistencies, if there are places where certain people have negotiated different deals and others are unaware of those deals, you’re going to have to reconcile that. You’re going to have to explain that. And to me, it’s more than just compliance. It’s about that internal transparency and sense of fairness that you have at your organization. So it’s not to say that everybody has to be paid the same. I think we’re actually going to be moving away from that, especially with so much knowledge available to employees about how they should be paid. So they have a great deal of agency now and they also, they advocate for others. They want to make sure that there is this overall fairness. So I think just being adult about explaining well, we are paying Joe more than Sue because of this specific skill set is okay. It’s okay to come out with things like that. You’re really going to have to make sure that all of those decisions you can look critically at and say authentically are made because of the business need, not because Joe’s a better negotiator than Sue or Joe was hired at a time that we just had more budget. Those are the types of distinctions I think everyone’s just going to have to get very clear on.

Lauren Jenkins: Thank you for your insights, Nancy. Thank you all so much and thank you for joining our roundtable discussion today. As always, if you’ve made it this far, thanks for listening and check out our website, globalshares.com for the latest equity comp news, insights and prospects. Product Updates Information provided in this podcast is intended for informational and educational purposes only and may contain views which differ from the views of JPMorgan Chase & Company. For specific guidance on how this information should be applied to your situation, you should consult a qualified professional. For full details, see the show notes on your podcast player right now, the Prosperity at Work podcast is produced by dustpod.io or JP Morgan Workplace Solutions.