Episode 4: Equity Story Hour: Part 2

[Rodney - Intro]

Hi, I’m your host, Rodney Bolden, Head of Industry Engagement and Learning for Morgan Stanley at Work. In Part 1 of our Equity Story Hour, we heard some powerful examples of how equity compensation has had tangible impacts on the lives of employees and their families.

Today, we’ll hear how different industry leaders approach their equity compensation programs, sharing examples of the lessons they’ve learned throughout their careers and the resulting best practices they use today.

This is Invested at Work.

[Rodney]

We know that proper education is a critical part of a successful equity compensation program. But there’s sometimes a misconception that it’s only more junior employees who need to learn the basics.
Earlier in her own career, Allison McBride, the Manager of Executive Compensation at a large paper company, learned the hard way that high-level executives can benefit from this kind of information too.

[Clip - Allison]

Rodney: Allison, with your experience in the world of equity compensation, I'm sure you have encountered situations where you had to educate employees about equity compensation. What is it? How to use it? Can you share any insights from your experience in educating employees on equity compensation?

Allison: Absolutely. So one of the most critical things I would say in dealing with employees on equity compensation is, and one of the more valuable lessons I've learned, is really to never overestimate what they understand and what they don't, don't understand at all, regardless of the level of employee that you're dealing with. So, let me give you an example. Years ago at a, at a former company, there was a very high-level executive who called me and wanted to exercise his stock options. And my comment was like, “Oh, okay, would you like to do a cashless sell?” “No, I want to exercise and hold these options.” I was like, “Oh, really?”

Allison: “Okay.” I said, “No, I'm good.” You know, I tried to talk him through it. “Are you sure?” He was absolutely confident. So we exercised those options and then I contacted him and said, “Okay, now I need a check from you for almost $200,000.” And he was mortified. And he was like, “Well, I don't understand.” And I was like, “Well, you know, you wanted to exercise and hold.”

Allison: And so he was very confused. And so that was early in my career. And even though I had tried to explain to him, his confidence was so high in what he wanted to do and what he, you know, his directions to me as the administrator. But what I learned with that is no matter the level in the organization of the employee, to stop and walk them through it and just go through the basics and even if it seems, you know, somewhat remedial for them, I've learned that it really never is.

[Rodney]

After that experience, Allison gained a newfound appreciation for the value of employer-led education.

[Clip - Allison]

Allison: And I've also learned that, you know, the employee communications, so the, the onus is really on the employer, in my opinion, to make sure that you educate your participant base. And I think you've got to educate in this day and age through multiple types of media. You've got to make sure that you get their attention.

Allison: And then we also direct our employees to the Morgan Stanley website where they have a lot of educational information as well to help. And we really just try to oversell that. We also have personal training sessions. We partner with Morgan Stanley on bringing in Financial Advisors or hosting webinars to talk about a particular topic.

Allison: And we have just found those to be very advantageous, and it kind of opens up the dialogue between the employer, or the employee and the employer, our team. And it really just brings us to a point where then equity compensation can actually hopefully benefit them.

[Rodney]

In order to provide quality employee education, Amy Wheeler, Director of Payroll Shared Services at an enterprise software developer, knows that it can be helpful to anticipate topics and questions that may be top-of-mind.

[Clip - Amy]

Rodney: What's the most frequently asked questions from employees about their equity compensation?

Amy: So, I'll say the most frequent is around taxation. Employees just not understanding that equity is supplemental income, so therefore you are going to pay the taxes. And then, you know, we have the RSUs that are straightforward, but then you get into the ISOs, the qualifying and disqualifying dispositions.

Amy: So employees not understanding the tax treatment around what a qualifying means versus a disqualifying disposition. So, we get a lot of those questions.

Amy: Yeah, so what I do personally at work is we have what I call education sessions about once a quarter, and we talk high level, you know, what does it mean from a taxation perspective? Why is it compensation, you know, and why is there an investment on it? Why is there vesting?

Amy: You know, these RSUs, what they think up front, but then they need to understand that there's a tier, a four year vesting term to it and what that means. So I think from that perspective, that's how we educate employees. Another thing is just having normal conversations, stopping by, talking to people, and just, you know, picking their brain of what they think around education, equity and understanding the value of equity.

[Rodney]

Having good, relevant educational content is just one piece of the puzzle. You also have to be able to meet your participants where they are.

And Lori Serrano, the Director of Equity Programs at a medical technology company, takes that literally.[Clip - Lori]

Lori: One of the most important things anybody in our profession can do is know their employees. Really understand who your employees are, who's receiving equity, and what do they understand about that equity. It's easy to go in and think everybody understands the equity because we hold equity training sessions.

Lori: But not everybody can attend those meetings. Not everybody has a computer. Not everybody even knows that all of these meetings exist. When I joined the company I was talking about earlier, I joined, I wanted to look and see what kind of data I had. I found out we granted to employees every single year, and then I wanted to see okay, how many employees still need to activate their grants or their accounts, then how many people still need to open or accept their grant agreements. And what I saw was we had a huge number of employees that had done both, except for the employees that were in the manufacturing floor. So I started talking to the directors and the managers in that area, found out we had no computers in the manufacturing floor.

Lori: So all of these invitations that were going out for financial wellness sessions, they didn't even know they existed. So, I decided to put a plan of attack in place so that I could go to where these employees were to provide financial education. I teamed up with our broker, and we met them on their shifts.

Lori: We were doing meetings at one in the morning. We were doing meetings at 7:45 at night, whatever it took. We'd have pizza brought in, we'd bring in tchotchkes, whatever it took to draw them to us, and we'd hold meetings during their lunchtime. During that time we educated them on: What kind of grants we issued? Why were they so important? What was the benefits of those grants? And then you know made them familiar with how to navigate the system, how to place trades. By the end of the sessions that we had put together there was over 200 millionaires that had no clue they were millionaires. And there was a lot of people that were well on their way because we had a long-term employee base.

Lori: They didn't know all of these things they were getting every year actually had value. So by sitting down, getting their accounts activated, accepting the grants, showing them how to use their account, they could see it right in front of them, what they had in value.

[Rodney]

Meeting your employees where they are can also be true in a more virtual sense, especially when it comes to engaging the next generation of workers.

Robert Serrano, an equity compensation professional from a specialty retailer, shared what he sees as the next frontier for employee education.

[Clip - Robert]

Rodney: Now, technology continues to evolve in the world, and that's no exception within equity compensation, but how do you use technology to help employees better understand the value of equity compensation within their financial lives and the potential to build wealth?

Robert: What's trending in the world today? So, videos. Videos are huge, especially, you know, where Instagram, TikTok, Twitter, you know, all these videos are now shortened to like, to one minute. And they're easy to grasp, they're easy to just retain that information. The content that we have already, here at GAP, it's all there.

Robert: And, you know, also for other partners, all the content on ESPP and RSU is there. However, education is a big drive. And we're trying to do an outreach program to connect with the store employees worldwide as much as possible. And we're planning to do something like that with videos, shortening them down to, like, a minute long, as-needed videos. Because, of course, there's complexities to equities. The moment that it's granted, the moment it's received.

[Rodney]

You’ve just heard a number of great ways that employers can educate their workforce on their equity compensation. But sometimes it can be a challenge to dedicate that level of time and company resources.

That’s why our episode’s final guest, Chelsea Bauer, Senior Equity Administrator at a search AI company, reminds us that you don’t have to go it alone, especially when you have the resources that she mentions.

[Clip - Chelsea]

Rodney: Excellent. For those equity stock admins that say, you know, education is just too difficult for me to do. What advice would you give to those equity stock admins who have that particular attitude or feel that way about educating employees?

Chelsea: I understand that our jobs are busy. And sometimes it's hard to stop and think, okay, great, now I got to write a whole new program and present it. The good thing is you don't have to. You already have that resource at Morgan Stanley at Work. Just reach out to your advisor and they can hook you up with an education team who is absolutely fabulous.

Chelsea: We actually just did that a couple of weeks ago and they were able to help us co-present on our RSU program and navigate, do a whole web demo navigating your account. And it was really well-attended and we got a lot of good feedback. And I'm just happy because we didn't have to make the whole thing from scratch. It was already there. It was nice.

[Rodney]

Our guests have highlighted so many ways that they support, through their equity compensation programs, the array of needs facing today’s workers.

We know that every equity compensation program—just like every employee—is unique, but we hope you’re able to take these tips forward into your organization to potentially improve the lives of your own employees—inside and outside of work.

[Static outro]

Thanks for tuning in. I hope you join us for the next episode of Invested at Work. If you haven’t already, remember to subscribe—and share it with your friends and colleagues!

Be sure to visit us at MorganStanley.com/atwork for more insights on workplace financial benefits, and how Morgan Stanley at Work may be able to help you.

In the meantime, I hope you’ll consider what makes you—and your employees—invested at work.

Invested at Work is brought to you by Morgan Stanley at Work, produced by StudioPod Media, and hosted by me, Rodney Bolden. Our executive producers are Fiona Kelsey, Lisa Boyce, and TJ Bonaventura. Our engineer is Alejandro Ramirez. And our writer is Dan Pelberg.

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Morgan Stanley Smith Barney, LLC, and its Financial Advisors and Private Wealth Advisors do not provide any tax or legal advice. Consult your own tax or legal advisor before making any tax or legal related investment decisions. Morgan Stanley at Work Services are provided by Morgan Stanley. Smith Barney, LLC, member SIPC, and its affiliates, are wholly owned subsidiaries of Morgan Stanley. The guest speakers are neither employees of nor affiliated with Morgan Stanley Smith Barney LLC, otherwise known as Morgan Stanley. The opinions expressed by our external guests are solely their own and do not represent the views of Morgan Stanley. 

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