Fractional share plan options can help employee retention and participation
Employees value being able to participate in their company’s share plan programs, as they can be significant parts of their pay, bonuses and benefits packages.
Company share plans give employees the opportunity to purchase shares of the company through payroll deductions and can be a great attraction and retention tool. But too many employees are being priced out, according to data from Computershare, an Australian-based stock transfer company. The average U.S. worker must set aside around one-third of their monthly disposable income in order to take part in one of these plans.
To ease this burden, employers should consider a fractional share purchase program instead, says Sheila Frierson, president of U.S. plan managers at Computershare. The company provides a platform for the employee to make the share selections, view their shares and subsequently sell or transfer them to another account.
“High value stocks can represent a very large proportion of workers’ disposable monthly income,” Frierson says. “By offering employees the option of purchasing fractional shares on a regular basis, employers can enable greater employee equity plan participation, empower more staff members to feel part of their company’s fortunes, and retain talent.”
Frierson connected with Employee Benefit News to discuss the benefits of offering employees a fractional share option.
What is the value of a company share plan to employees?
An employee stock purchase plan is when a company gives the employees the opportunity to purchase shares of the company through payroll deductions. Often times these plans are offered with some kind of discount or a match. Employees are given the opportunity to purchase stock at a lower price than somebody who did not work at the company.
From an employee benefit perspective, it’s the ability to have an additional stake in the company you work for and another way to build equity towards retirement. It is also an easier way for someone to get into share ownership, facilitated by the company, without potentially having to figure out how to invest on your own.
Why are employees being priced-out of these plans?
Company stock prices, even something like $50 a share, can be pretty expensive depending on how much an employee is able to contribute on a per-paycheck basis. As we start to see the volatility in the market, there are some company stock prices that are now $200, $300 or, for some companies, almost $2,000 a share. Somebody may only have an additional $10 or $20 to contribute toward owning stock in their employer on a per paycheck or monthly basis. So how does an employee become a shareholder?
Why should employers offer a fractional share option?
This is something that plans have allowed from the start, but it does have to be something that is denoted in a plan. When a company writes a plan, they would write specifically that they would either only buy whole shares, or buy whole and fractional shares. The reason we don’t see a lot of companies with fractional shares written in is because historically a lot of vendors weren’t able to handle a fractional share purchase. A fractional share is really buying less than one share, so depending on the vendor and how they’re set up, they might not be able to facilitate this. So often times employers will write their plans to fit into a box.
Computershare has the ability to manage fractional shares and as stock prices have risen, we started to see how it could be a real benefit to employers. If you’re not able to purchase fractional shares then essentially the company is going to sit on the employees’ money until it accumulates to the point where they can purchase one share. The problem with that is, over a purchase period the price can continue to go up and the employee is now losing out. The employee could have bought part of that share at a lower rate and realized a bigger benefit. Our stance is let’s put every cent of that employee’s money to work.