A new Morgan Stanley at Work Report Reveals

A new Morgan Stanley at Work report reveals that companies are reimagining equity compensation to compete for talent amid the “Great Resignation.”

• Morgan Stanley at Works 2022 State of Equity Plan Management Report highlights how public and private companies implement and manage their equity compensation plans around the world

• The need to scale stock plans is increasing as human resource decision-makers use equity compensation to attract, retain, and motivate employees across their organizations.

Morgan Stanley at Work today released new proprietary research revealing that amid the “Great Resignation,” equity compensation has become more critical for public and private companies competing for talent across the globe. Companies are implementing innovative solutions in their plan design to improve retention to gain a competitive advantage.

The State of Equity Plan Management at Public and Private Companies, a new research report from Morgan Stanley at Work, also noted that equity compensation is one piece of a larger puzzle when it comes to attracting and retaining talent, as employees are focused on their entire work experience.

The 2022 global report was commissioned to benchmark company mindsets and behaviors surrounding equity plan management and better understand how organizations around the world are implementing and managing equity compensation plans. The study also delves into the current landscape and industry trends surrounding equity plan management, employee engagement, related priorities and challenges, and the types of plans that are currently available.

Among the reports key findings:

• The primary goal of equity compensation continues to be to attract and retain talent. The number one goal for offering equity compensation, according to nearly one-third (32 percent) of HR decision-makers, is to attract and retain talent. This is especially timely given that nearly half (47 percent) of employers reported higher workforce attrition in 2021 than in 2020.

• “Greatness” continues to elude us. According to the report, 50 percent of HR decision-makers believe their current equity compensation plan is at least “good” at retaining talent, but only 38 percent believe it is exceptional. Employees are leaving for opportunities that offer stronger benefits or more work-life benefits, regardless of equity offered, according to 55 percent of those who indicated their current equity compensation plan was not successful in talent acquisition or retention.

• Scale is essential. After salary increases, “expand equity to a broader range of employees” is the second most popular strategy among HR decision-makers for combating attrition. This initiative is particularly noticeable in Canada and EMEA, with 46 percent and 39 percent, respectively. Almost one-third of US HR decision-makers want to expand their equity compensation programs as well.

• High engagement is associated with frequent communication. Employers with high to moderate stock plan engagement communicate with participants on a weekly to monthly basis, according to 48%. On the other end of the spectrum, 70 percent of employers with low to no engagement communicate annually or on an ad hoc basis.

• The plan's design is changing. Almost four out of ten public companies (35 percent) offer lookbacks and discounts for employee stock purchase programs. Almost a third of U.S. and Canadian companies (32 percent) offer shorter and more flexible vesting schedules to meet the needs of their employees.

“This report demonstrates that, even as the way we work evolves, equity compensation is becoming an increasingly important tool in attracting and retaining the best talent across an organization,” said Scott Whatley, Head of Equity Compensation at Morgan Stanley at Work. “By updating their equity compensation plans in 2022, companies can not only gain a competitive advantage in the war for talent but also significantly assist employees in meeting their financial objectives.” Equally important is for companies to find the right stock plan administrators to help scale these benefits so that all employees—from the bottom up—understand, engage with, and ultimately derive satisfaction from the equity.

For the first time, these insights include perspectives from both public and private companies, whereas previous iterations focused solely on the private sector. Despite differences in size, ownership structure, and industry, attitudes toward attrition, employee education, and administration were strikingly similar across public and private companies, with a few notable exceptions:

• Private companies lag in terms of providing equity to more employees. While equity compensation is an important benefit for companies to attract and retain talent, only 35% of private companies provide this benefit to executives and all employees, compared to 43% of public companies.

• Private companies are less eager to increase equity compensation. When asked about employee retention initiatives in the last year, 48 percent of public companies are expanding their offerings to a broader range of employees, compared to 35 percent of private companies.

• Cliffs are less common in private businesses. In the face of increased demand for flexibility and competition for talent, 63 percent of private companies say they have a cliff, compared to 83 percent of public companies.

“As private companies continue to remain private for longer periods, the need to effectively manage and update their equity plans to evolve in tandem with participant needs has never been more critical,” said Jeremy Wright, Managing Director and Co-Head of Morgan Stanley at Work's Global Private Markets. “Employees and job seekers have become savvier about equity compensation, providing private companies and founders with a significant opportunity to use equity plans to attract like-minded visionaries to help build their businesses.”

Morgan Stanley Wealth Management Canada Inc. (MSWC) has been steadily rolling out its operations, having recently completed its pilot phase and is now live, according to the report. MSWC provides a full-service wealth management offering to executives and employees in Canada, in addition to the existing Morgan Stanley at Work stock plan services. Morgan Stanley at Work provides services to more than 70% of the TSX60 companies.