Equity compensation was once a powerful way to attract and retain workers, especially if it could significantly boost total compensation.
But, Glassdoor’s 2024 workplace trend report predicts that equity compensation will decline for a second consecutive year as competition for skilled workers cools — especially among entry-level workers.
“A lot of entry-level career workers are going to see their equity compensation a lot less valuable than they thought,” said Aaron Terrazas, chief economist at Glassdoor. “That’s going to create a lot of angst and friction in the workplace.”
Kat Campbell, founder of HR consultancy firm HowardHelen, who has expertise in equity compensation, sees the same thing happening.
“If you work at a bigger company, you’re probably not going to be setting the firm-wide strategy, getting key clients, making sure all the rules are followed, all those things,” said Campbell. “For junior employees, cash is absolutely crucial.”
Terrazas also explained that, with equity compensation, workers have less visibility into how what they receive compares historically or even against their peers, giving employers a lever to control costs in a slower labor market. This is especially clear in the tech industry, where equity compensation has long been a pillar of total compensation packages.
Glassdoor’s report reads: “The typical entry-level equity grant in tech will have been effectively flat in dollar terms since 2015, and down by roughly 30 percent in inflation-adjusted terms.”
“I think we talk about having created incredible opportunities for so many workers,” said Terrazas. “But, that’s really the case more for experienced workers. There are still very high returns at the top of the market for exceptionally skilled workers.”
Terrazas predicted more experienced tech workers will only see a nominal decline in equity compensation.
“As you get more advanced in your career, for more senior positions, you have to tie compensation to equity because you want business leaders held accountable for those results,” said Campbell.
With equity compensation on the decline, some workers are hoping for another type of holiday gift from employers this year. According to a new Yahoo Finance poll, 70% of Americans want to receive stock as this year’s holiday present.
Yahoo’s survey found that 61% said a holiday gift of stock would contribute to savings for the future, 54% said stock would help them build wealth and 23% said they would use stock to offset inflation. The excitement around investments comes after November’s streak that saw major stock averages up four weeks in a row.
The Yahoo Finance poll also found that 15% of Americans see investments as a good way to pay off debts, while another 12% believe the rising stock market will help their overall financial outlook. If stocks are no longer part of work compensation packages, it makes sense that people are still managing their own investments.
And when people have cash to buy their own stocks, they can choose according to their personal risk tolerance and what companies they value and want to invest in, said Campbell. If an employer does decide to offer stock options, “no matter how hard you try, you’re not going to make everyone happy,” she said.
But even a holiday gift of stocks doesn’t compare to the monetary value of having a stake in the company you work for, Terrazas said. “You’re not going to get anything close to what an employer would give you as a gift from your family or friends,” Terrazas added.
And Campbell warned that there can be downsides to choosing stocks as a gift.
“I think it’s a great idea if you’re able to tolerate the downside,” said Campbell. “You would assume that your stock is gonna rise six or eight percent annually, but also know, it might not. And it might not in the time that you actually need that money.”
Because of the predicted decline in equity compensation, Terrazas said in the Glassdoor report that after the holiday season, there is likely to be a renewed appetite for pay transparency beyond salaries and wages.
“It makes cash more attractive,” said Terrazas. “For folks earlier on in their career, cash is a lot more meaningful to them than it used to be.”
“Junior people should sit down and think about what they need for their lifestyle, personality and what drives them, and try to find a compensation structure that aligns with that,” said Campbell. “As a more junior person you might want to focus on rent and food right now. If you’re not able to do that, then the equity is just a big question mark.”