Choice Plan GPS
If you turn over the keys to your employees, what happens if they take a wrong turn? This is important for employers to consider
when it comes to designing compensation plans.
We find that some companies looking to stand
out from the crowd are moving beyond traditional
equity and cash-based award plans, and are
exploring new strategies that offer more choices
Yet while more choices—and more
possibilities—are great in theory, they may open
the door for potential missteps for employers and
Choice plans are fairly straightforward in
concept. Unlike traditional equity compensation
packages, these cafeteria-style plans allow
participants to select from a list of equity
vehicles, or set an allocation of equity and cash.
It’s a strategy that offers eligible individuals
greater control over their equity compensation
package. But it’s not always the easiest to
First, the company has to find the right mix of
choices to offer. What works for one company
may not work for another, and so there’s a need
to build a plan structure that reflects a company’s
needs. For example, some companies may
favor greater share ownership at senior levels
within the organization. As a result, they might
encourage managers to invest in the company
by offering more diverse equity selections.
Conversely, the company may offer lower-level
participants the ability to choose more cash than
In our work with clients, we find that some
companies with a global presence sometimes
prefer cash over equity because they perceive it as
easier to understand and having fewer regulatory
considerations outside of the US.
Some of our clients have also noted that
Millennials seem to prefer more immediate
vesting over a more traditional three- or five-year schedule.1 As a result, we have come
across companies that are evaluating whether
monthly or quarterly grants of awards, or even a
shortening of vesting periods, would fit with their
Once a company decides on the right mix,
there’s another looming challenge: making sure
plan participants know what to do once they’re in
the driver’s seat.
With choice plans, the onus is on the participant
to make decisions—significant decisions—about
the composition of their compensation package.
The potential benefits of choice plans are many,
but so are the potential pitfalls—especially if there
is a lack of understanding.
So it falls on HR pros to provide participants
with the tools necessary to inform their
decisions. Unsurprisingly, HR departments
need a comprehensive and well-thought-out
What most companies have found, in our
experience, is that emails aren’t enough to ensure
participants have a full understanding of what
they’re selecting, and what it could mean for their
financial planning over the long term.
At E*TRADE, we work with clients to help
deliver on-site and virtual education as a way to
inform participants about some of the basics of
their equity compensation benefits. On-demand
seminars, as well as engaging online multimedia
and mobile content, can go a long way toward
increasing participant understanding. Interactive
calculators and models designed to assist
participants in the decision-making process are
particularly popular as well. Some companies also
line up their choice plan enrollment periods with
other annual benefits enrollments in an effort to
maximize participant attention.
Keys in the Ignition
Giving participants the keys can make equity
compensation more engaging, and even fun. But
it’s up to the company to design ways to keep
participants headed in the right direction and
on the way to maximizing their compensation
Craig Rubino is a Director at E*TRADE Financial
Corporate Services, Inc. (E*TRADE). This
commentary contains current opinions from
E*TRADE Financial Corporation and its affiliates
which are subject to change without notice.
E*TRADE is not affiliated with Human Resource
Executive® and all commentary is owned solely
by E*TRADE. In connection with stock plan
solutions offered by E*TRADE Financial Corporate
Services, Inc., E*TRADE Securities LLC provides
brokerage services to stock plan participants.
E*TRADE Financial Corporate Services, Inc. and
E*TRADE Securities LLC are separate but affiliated
Organization name: E*TRADE Financial Corporate Services, Inc.
Headquarters: New York
HR Challenge Solved: Helping clients deliver on-site and virtual education as
a way to inform participants about their equity compensation bene;ts.
1 Equity Edge Online® active Restricted Stock Plans, as of June 30, 2017; stock plans administered by E*TRADE Financial Corporate Services, Inc. as of June 30, 2017.