Public and private companies in search of new financial wellness tools are casting an eye toward allowing employees to use their exercised stock options as collateral for loans, following a recent move by Amazon.
The retailing behemoth is partnering with online mortgage lender Better.com, enabling employees to pledge their Amazon stock as collateral for home loans under Better.com’s Equity Unlocker.
The program allows employees to still hold onto their stock, rather than sell it to cover the down payment. Amazon employees may be hesitant to sell their shares now in hopes of better days, given its stock is down by roughly 42% over the past year.
Since news of Amazon’s Better.com partnership began to circulate during the past month, it’s piquing the interest of some employers, especially start-ups that are remaining private longer than anticipated but that still want to give their employees the option to tap or leverage some of the equity in their stock options.
Are stock-options-for-loans a growing benefit?
“We’re now starting to have those conversations with companies and it’s ramping up quite quickly,” says Kelly Rodriques, CEO of Forge Global, a marketplace where stocks in private companies can be traded. As a result of Amazon’s partnership with Better.com and inquiries from employers, Rodriques is now considering expanding Forge’s offerings of short-term loans to certain qualified sellers of private stock to longer term loans.
This type of benefit comes at a time when the topic of financial wellness is garnering increasing attention among CHROs and HR benefits leaders. During the pandemic, a larger number of people lost their jobs, especially in the hospitality sector, and now there is talk an economic recession may wash ashore in the second half of this year. That would compound the financial strain employees already feel.
Related: To learn more about financial wellness, check out sessions on helping employees boost financial health sessions at HRE’s Health & Benefits Leadership Conference, May 3-5 at Mandalay Bay in Las Vegas.
For example, 56% of 3,000 workers across several industries note they are stressed about their finances, according to a 2022 PwC Employee Financial Wellness Survey. And the percentage of employees who say their compensation is keeping up with the rising cost of living expenses fell to 42% last year, compared to 52% in the previous year.
HR leaders are well aware that financial wellness plays a significant role in employees’ overall wellbeing. Some companies, such as Microsoft, offer to pay off college loans and to find ways to reduce medical bills as part of their employees’ financial wellness support.
Finding a fit for stock as loan collateral
Offering the ability to use stock options as collateral to secure loans, such as mortgage loans, can serve as a recruitment and retention tool for employers, as well as help them address employees’ financial wellness.
Kevin Grossman, president of the non-profit TA research organization Talent Board, expects to see more employers take Amazon’s lead and offer the ability to use collateralized stock options for a recruitment tool.
Lisa Yee, president and CEO, benefits, of the non-profit Silicon Valley Employers Forum (SVEF), also sees this financial wellness practice as a good retention tool.
“Employers seek innovative solutions to attract and retain talent while providing the best employee experience. Given the challenges and fierce competition in purchasing a home, especially in the California Bay Area market, allowing the offset of stock options as collateral to use as a down payment is unique and bold,” says Yee. “It will be interesting to see if this innovative approach gains traction with tech employers.”
Rodriques agrees it could help boost retention, especially for employees seeking to purchase a home or auto or to attend college. If they feel their stock options are heavily undervalued and are loathe to sell them, they might prefer taking out a collateralized loan.
Private companies may especially find the use of allowing stock options as loan collateral useful for retention purposes, says Alan Johnson, president of compensation consulting firm Johnson Associates.
Recruiting or retention tool?
This type of financial wellness tool could be attractive to a specific type of employee, Johnson says. Specifically, those with five to 10 years at an organization, who own a lot of company stock, believe there is more upside left in the stock, have no plans to leave the company and are interested in buying a larger house, boat or other expensive asset or expense.
He adds that while stock-based loans can help with retention, they are not likely to be a big draw in attracting new employees because they could be hard to explain to new hires, Johnson says.
Nonetheless, Vieje Piauwasdy, senior director of equity strategy at wealth management and stock option financing firm Secfi, says employers can enhance their financial wellness offerings by allowing employees to do this and simultaneously boost mental health.
In part, that’s because the lure and stress of using stock options can grow exponentially as the value and number of stock options grow, he notes.
“I always joke about this. It’s like more money, more problems,” Piauwasdy says. “And when you suddenly have highly appreciated stock options, which everyone wants, right?, that’s a great problem to have. But, it’s still a problem nonetheless.”
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