Addressing the Private Company Equity Compensation Gap Impacting Working Moms
Ongoing compensation gaps between men and women is an issue that has gained prominence in recent years; but, less frequently mentioned is the equity compensation pay gap. In Shareworks’ latest research report “Transparency 2021: Addressing Gaps in Equity Compensation,” we found that several groups, including women and in particular, working moms, are disproportionately missing out on equity compensation opportunities in comparison to their male counterparts.
Why the Equity Compensation Gap Matters
For both public and private companies, equity compensation can be an incredibly important incentive structure that helps align employees with the growth of the company. Equity compensation can be granted based on a number of factors, but within many organizations, equity is designed to reward an employee for their tenure and performance. Therefore, employees are theoretically incentivized to stay with a company longer in order to receive more equity.
Equity compensation has also become a powerful lever of upward financial mobility. Research suggests that equity compensation can make up 27% of an individual’s net worth, with the possibility to dramatically increase personal income.1
So, it is easy to see why the following finding from the report raises an alarm about the equity compensation gap impacting working mothers:
Of those individuals who were granted 4–5% of their equity compensation, only 25% were working mothers, compared to 60% of working fathers.
Source: Shareworks “Transparency 2021: Addressing Gaps in Equity Compensation” Report
Understanding the Equity Compensation Gap
This gap in equity-based compensation for working mothers can be attributed to a variety of factors outlined in the report. One example is the “Stop Vesting” provision that some companies have as part of their equity plan. This provision stops equity from vesting in the event an employee takes a leave of absence. This can include maternity leave which, depending on company policy, commonly impacts women more than men.
As the report points out: “For women, the stop vesting provision can force an unnecessary choice: family or career?” The below chart shows that between 6-10 years is when many females start to drop out of the workforce, effectively forcing them to leave equity on the table.
What Can Companies do to Address the Equity Gap?
For organizations intent on building a diverse and inclusive workforce, creating equity compensation policies that support working mothers may be important. This may begin with creating flexible vesting schedules or potentially removing or amending the “Stop Vesting” provision in your equity compensation plans that disproportionately impact working mothers.
Your company may use the following value markers to evaluate how well your equity compensation program takes into account the unique circumstances of all employee shareholders:
1) Objectively measures how well you are performing at delivering equitable opportunities across your organization.
2) Clearly communicates the value of your equity program through ongoing education such as content and/or workshops.
3) Is structured in a way that removes any barriers to participation and supports the diverse needs of your employee-base.
Not sure where to get started? Read our “Transparency 2021: Addressing Gaps in Equity Compensation” report to learn more about how to create opportunities and foster diversity and inclusion in your equity compensation strategy.
- Barney, Lee, Plan Advisor, (2019). The Importance of Equity Compensation in a Retirement Portfolio