Fidelity Survey Shows Many Employees Confused About Stock Option Plans

A newly released survey by Fidelity Investments shows that 25% of respondents say they have little or no understanding of their stock purchase plan and one-third have little or no understanding of their stock option plan. The study was performed for Fidelity by Richard Day Research and involved a nationwide survey of 896 household financial decision-makers in households having a stock option plan or stock purchase plan. The study projected that one million participants let their options expire between 1999 and 2002. More remarkably, a similar number turned down the grant of an option during the same time. Just over half of those who let an option expire did so because they did not understand the plan, mostly because they did not know how to exercise an option. In stock purchase plans, 32% did not purchase stock during the three-year period. Of these, just 10% said it was because they did not understand the plan. Only about 40% of respondents indicated they had a complete understanding of their plans.

For 74% of option holders and 76% of stock purchase plan participants, the plan was their first experience with investing, indicating just how basic communication must be about these programs. Only 39% of those with options have a strategy for exercising them, and only 10% think of them in terms of their overall financial picture. Participants in both kinds of plans, however, do monitor company stock price closely. A third check prices daily, half at least once a week, and two-thirds at least once a month. Most respondents said they wanted the company, not a third party, to provide more information about the plan, with about an even split preferring on-line, written, or face-to-face communications.

The study also revealed that about 8% of U.S. households with at least one full-time employed adult participate in a stock option plan. Ten percent are offered stock purchase plans, with 6% participating. These numbers translate into roughly similar estimates of the number of employees the NCEO believes currently hold options (about seven to 10 million) but somewhat lower than the number of employees offered stock purchase plans (we estimate it is 15 million; this survey suggests the number may be closer to 12). Translating from number of households into the number of employees, however, requires a few assumptions, such as the number of employed people in the household and how many of these people get options (more than one person in a household may receive options), so the NCEO and Fidelity data are not precisely comparable.