Fair Equity Compensation Starts with Hiring and Promotion
Equity compensation can act as a powerful incentive structure to generate loyalty, ambition and alignment amongst employees. However, the way in which equity is administered, and to whom, may unintentionally exacerbate obstacles in achieving equality within the workplace.
In Shareworks by Morgan Stanley’s latest research report, “Transparency: 2021: Addressing Gaps in Equity Compensation”, we surveyed hundreds of public and private companies and found that, when it comes to equity compensation, there are clear gaps that exist between employees of different races and ethnicities.
For example, we found that men more frequently occupy the senior-most roles of Director-level or higher roles, 1 which are most commonly eligible for equity compensation. Looking at equity plan participation as a whole across U.S. companies, females comprised only 40% of the total equity compensation pool versus 54% of men. 2 When you compare equity compensation by race, the gap is even larger between white and non-white employees:
Source: Transparency 2021 Report at [8]
Even for individuals in the same role, equity compensation was not equal. For example, when comparing individuals in a VP/Director level role who received 4% or more of compensation in equity, only 27% were women, compared to 42% of men.3
Source: Transparency 2021 Report at [14]
The fact that women and minorities are categorically underrepresented within the workforce is not new information. However, examining the issue through the lens of equity compensation sheds new light on the barriers to building a more equitable workforce. After all, equity compensation plans may only be as diverse as the employees participating in them. Therefore, in order to build a more equitable workforce, companies may consider an equity compensation strategy that both rewards employees for their hard work and creates equal opportunities for employees of all ethnicities, genders, and cultural backgrounds.
Examining equity plan participation among your current employees is a place to start. Noticeable gaps between eligibility and participation among individuals of a specific gender, ethnicity or cultural background may point to a potential barrier within the plan itself. Every employee should understand the value and long-term benefits of equity and also feel that their individual voice is fully represented in the plan’s policies. Any barriers or unconscious biases that limit or prevent participation among your various employee demographics should be immediately addressed.
Addressing those gaps in equity plan participation may not only open up advancement opportunities for your existing employees but also could potentially help you recruit and build a more equitable workforce. 75% of the executives we surveyed in our 2020 State of Equity Plan Administration Report agreed equity is quickly becoming a critical part of their overall compensation strategy. 4 Demonstrating a commitment to equity compensation parity can potentially serve as a differentiator and possibly a recruitment tool.
Want to learn more? Please read the full research report to discover more ways to identify and address gaps in equity compensation at your company. And, if you’d like to learn more about how Shareworks can help you better manage your equity plans, please let us know!
Sources:
1 Shareworks by Morgan Stanley (2021). Transparency 2021 Report at [8]
2 Transparency 2021 Report at [19]
3 Transparency 2021 Report at [11]
4 Shareworks by Morgan Stanley (2020). The State of Equity Plan Management Report at [12]