COMMUNICATION - Employees Need More Stock Plan Education - PlanAdvisor.com - 8/22/08

Employees Need More Stock Plan Education

http://www.planadviser.com/selling/article.php/2708

Rebecca Moore – 08/22/2008

New
research from Fidelity says equity compensation plans encourage
employee loyalty and productivity, but many employees are not reaping
the rewards of this incentive due to lack of understanding.

Overall,
the study from Fidelity Stock Plan Services suggests 16% of the U.S.
work force is enrolled in at least one type of stock plan, while 9% are
enrolled in multiple plans. About two-thirds of those who work for an
employer that offers a stock plan (11% of all employed) have received a
stock option grant. Restricted stock plans, now offered by 9% of
employers, showed 6% of the total work force participating. Stock
purchase plans are offered by 17% of employers and the number of
employees participating is 11%.

Three-fourths (74%) of respondents at companies
that offered all three plan types report they feel more loyal to their
company as a result of the plan and 76% of respondents say they work
harder. More than two-thirds say stock plans made them feel more
invested in their place of employment and about half indicated a stock
plan offering made them less likely to change jobs.

Eighty-six percent of participants in stock option
plans (SOPs) and 89% in restricted stock plans (RSPs) consider their
plans to be a key part of their compensation package, while four in 10
say a company stock plan is a requirement when choosing a place of
employment.

However, Fidelity's survey reveals employers could
reap more loyalty and productivity benefits if stock plan participants
were more educated about their plans.

The Need for Participant Education

While 84% of SOP participants said they understand
their plan overall, and 80% said they understand both how and when to
exercise their options, the numbers actually reveal a troubling trend,
according to Fidelity. The 20% who do not know how or when to exercise
options compares with just 5% in 2002 and the 23% who do not understand
the tax implications of exercising options compares to just 11% in
2002.

In addition, when looking at other survey results
it becomes clear that employees' self-assessed understanding is
somewhat overstated. A majority of participants (58%) have never taken
action to protect the value of their options. Their top reasons for
this inaction include the assumption that share prices will always
continue to rise, as well as the fact that no specific action has ever
been suggested to them.

An alarming one-fourth of stock option plan
participants also admit to having allowed in-money options to expire.
One-third say they forgot about their options, and another third were
either daunted by the complexity of the plan or did not understand it.

Participants in RSPs have the highest level of
confusion among all three plan types, according to Fidelity, with
almost one-third (31%) uncertain about ways to meet tax liability and
one-quarter even unclear about what restrictions are placed on the
stock. The tax considerations when restricted stock is accepted and
when it vests are also widely misunderstood—by 27% of all participants
in each of those situations.

By a slight margin, participants in stock purchase
plans (SPPs) have the best understanding of their plan among the three
plan types. Most SPP participants are regular purchasers—only 18% of
respondents who had ever participated in their company's stock purchase
plan had not bought stock in the past three years, and 58% said they
buy stock every time it is offered.

However, although the rules applicable to stock
purchase plans are comparatively straightforward, Fidelity said its
survey indicates an erosion of overall understanding over the past five
years. Twenty percent of participants say they do not understand the
tax implications of their stock purchase plan, compared to just 12% who
said the same in 2002.

According to Fidelity, the fact that a wider range
of participants from the non-management ranks are participating in
company stock plans may have contributed to the fall in overall
understanding of the plans. Employees with no past experience of stock
compensation plans are less likely to be familiar with the nuances and
tax considerations.

Seventy percent of all respondents say they would
like additional information to help them understand their plans. The
help most requested (by 27% of respondent participants) is for
information on tax implications; followed by information on "when and
how to buy/sell/exercise" (over 20%); and clearer, simpler information
and one-on-one assistance (over 20%).