Updates to ESOPs

From the C-suite to the shop floor, employees have an array of ways to share in their company’s success – options, stock grants or buying shares at a discount. But as anyone knows, being heavily invested in a single stock is not for the faint of heart.

Following a decade that incorporates the dotcom bust, Enron’s disastrous fall, a worldwide financial crisis and a debt crisis that is still unfolding, it is reasonable to ask: has the world soured on employee share ownership?

The short answer is that employee share ownership is still seen as an important part of corporate culture. It is seen as a way of encouraging productivity, boosting morale and eventually increasing personal wealth.

But years of middling or negative returns – and the stomach-churning volatility of late – have cooled employees and companies alike toward making an equity stake too big a part of their compensation. And this has led to a measurable decline in broad-based, long-term incentive grants.

For executive management, though, equity is still a key part of compensation, helping companies to compete for talent while aligning management and shareholder interests.

There have been significant shifts, however, such as a move to grant stock outright rather than grant options to buy, or being more selective with dwindling remuneration budgets, or tying stock grants to performance.

Through it all, employees and executives alike are keen observers of companies’ stock performance, which means the investor relations team, in tandem with the communications and human resources departments, play to a tough internal crowd.

From exuberance to realism

The 1990s were the heyday of broad-based stock compensation, especially in the US. Then the dotcom crash wiped out a lot of paper millionaires, as did Enron and other scandals.

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