Is company stock making a comeback?
A new study by Charles Schwab (Stock Quote: SCHW) finds many companies renewing emphasis on using their own stock to reward and motivate employees.
About 25% of the 200 firms polled said they would increase stock-related benefits in the next year, while 68% said they would maintain their stock plans at current levels despite economic woes causing firms to trim other forms of pay and benefits. The survey covered stock offered through options, through restricted-share programs that vest over time and through performance-based rewards.
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Other studies suggest that many employees are starting to increase employer stock purchases through 401(k) plans.
Which leads to the question: Are employees taking too much risk?
The strategy of investing in employers' stock got a black eye in the Enron collapse of 2001, when thousands of the energy company’s employees lost both their jobs and retirement savings.
Afterward, many financial advisers urged employees to lighten up on company stock. The Pension Protection Act of 2006 gave employees with three or more years on the job the right to sell shares obtained from employer matches of 401(k) contributions. Employees can sell shares acquired with their own contributions at any time.
Still, about 10% of 401(k) assets are held in company stock, and some employees keep the bulk of their accounts in employer shares, according to the Employee Benefit Research Institute.
Most experts argue that individual investors, especially those who are not savvy stock pickers, should have no more than 10% of their holdings in any single stock. On the other hand, many people do get rich with holdings in a single company. Just ask the employees who got in on the ground floor of Microsoft (Stock Quote: MSFT).
