Benefits and Compensation

Diverse Compensation Plans Are a Win-Win for All

Despite a recent Gallup poll that found only 55% of Americans reported owning stock, a Rutgers study showed that most Americans report they would prefer to work for a company that gives them a stake in the business. 

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Not surprisingly, stock ownership varied by gender and race: Only 52% of women reported owning stock compared with 58% of men, and 28% of Hispanic respondents owned stock compared with 42% of non-Hispanic black and 64% of non-Hispanic white respondents. 

That stake in the business can take the form of profit sharing or even an equity interest, as most Americans want greater diversity beyond just base wages in their compensation plans. Diversifying compensation plans to include more than just base wages can help improve financial health for employees and help improve company performance.

A Financial Health Win for Employees

There are a number of ways businesses can diversify their compensation plans for employees. These can include cash incentives tied to performance, opportunities to purchase discounted stocks, or other equity-based incentive models or the numerous other tools employers may have at their disposal. One common tool is Employee Stock Ownership Plans (ESOPs).

Research has suggested that ESOPs and other forms of equity-based compensation can benefit employee financial health. One study, which tracked 5,504 individuals since 1997, found that those who worked for companies that gave employees some ownership had higher wages and wealth and better benefits and job quality than their peers who did not have access to equity compensation. Importantly, this study’s findings hold regardless of industry or the individuals’ demographics. 

 Similarly, a 2018 survey found that employees in ESOPs reported an average retirement balance of approximately $170,000, nearly double the national average of approximately $80,000 (at the time of the survey).  

A Financial Health Win for Companies

Most businesses would like to be known as a great place to work, and researchers from Rutgers, Sloan Foundation, and Harvard have suggested that one link in the “great place to work” chain is broad-based incentive compensation such as employee ownership, profit sharing, and stock options. 

Researchers concluded that companies offering equity and profit sharing to their entire workforce performed substantially better in a variety of measures. For instance, their workers were more likely to say their company had a collaborative management culture, that they were getting a fair share of compensation, and that their company was an “excellent place to work.”

The study also looked at company financial performance (as proxied by return on equity) relative to broad-based incentive compensation: Those companies offering such benefits had a return on equity 12% higher than their peers. In addition, companies with diverse compensation structures had a much lower voluntary turnover rate—employees were half as likely to leave—than those without broad-based compensation plans.

The Bottom Line on Compensation

While overall compensation plays a part in any financial health program, diversity of compensation offerings—especially equity programs—has benefits for both employees (e.g., higher wages, more retirement savings, and better benefits and job satisfaction) and businesses (e.g., stronger financial performance, less turnover, and a happier and more engaged workforce).

Integrating broad-based incentive compensation into a financial health program can help advance the cause of financial health and create a win-win for employers and their workforce.

Matt Bahl is Vice President and Head of Workplace for Financial Health Network. In this role, Bahl leads market development and workplace strategy efforts across the organization. He is deeply committed to helping improve financial health for all and believes work and the workplace play a key role in making that goal a reality. With over 15 years of financial services, consulting, legal, and Human Resources experience, Bahl understands the impact that work and the workplace can have on improving worker financial health.