New data from Fidelity Investments shows there has been a "huge increase" in the number of employees who are selling their company stock, primarily to "free up finances."


"In the last three years, the number of people who have sold all of their shares increased to 50% - most are selling their shares to invest in real estate or pay down debt," Fidelity says.

Clearly, U.S. workers who receive company shares see them as a valuable personal financial tool, able to help put a down payment on a house or to pay off credit-ruining student loan bills, among other expenditures.

"Employee stock purchase plans are becoming increasingly popular workplace benefits - in many cases, workers have ranked them as their top benefit, alongside 401(k)s and health care," says Emily Cervino, vice president at Fidelity Stock Plan Services.

"Since they allow everyday employees to purchase company stock, often at a discount, individuals have indicated these plans can be a great way to address debt and pay bills, as well as build a rainy day fund or save for retirement," she adds.

While that's true, other employee compensation analysts say there is a risk in relying too much on employee stocks or employee stock options - both as a bank account or as an investment vehicle.

"While stock options are obviously welcomed by employees, it's important for them to know they could be putting themselves in a perilous financial position with such compensation," says John Voltaggio, managing wealth advisor for Northern Trust, who has "many clients" who receive company stock options.

Voltaggio says to look at companies like Sears (SHLD) (-53% in 2016), Hertz (HTZ) (-61%) and Valeant's (VRX)  (-85%) "free fall."

"Employees should also realize that concentrated risk in their company includes not only common stock holdings, but also equity-linked compensation (stock options, for example, which are inherently riskier than common shares), salary, bonus, professional reputation, insurance, benefits, pension, exposure to company stock within qualified savings plans and non-qualified savings plans," Voltaggio states.

Furthermore, employees need to quantify the true level of company exposure in relation to their overall portfolios, understanding the nature of the concentration (such as tax cost basis, strike price and expiration date of options, vesting dates, forfeiture rules, and minimum stock ownership requirements). "They'll also need to take action on a systematic and disciplined basis to manage that concentration," he adds.

A candid discussion with a trusted financial advisor would do wonders, in the above regard.

"Specific action steps may include selling net shares received upon restricted stock vesting (which now have a full cost basis), exercising in-the-money stock options, and/or changing the allocation for current holdings and future contributions to qualified and non-qualified savings plans," Voltaggio notes.

Knowing the difference between receiving common stock and stock options from your employer, is critical, as there are key distinctions between the two packages.

"Option packages usually allow the employee to buy company stock at a pre-specified price (the "strike" price), regardless of what the stock is trading at in the open market," explains John Sedunov, professor of finance at Villanova School of Business. "Thus, the option is more valuable when the stock price is high relative to the strike price."

In that scenario, stock options give the employees incentive to work toward stock price appreciation, and more cash, Sedunov adds. "Consequently, issuing options that are out-of-the-money -- where the strike price is higher than the current stock price -- is a great way for a firm to motivate employees to increase productivity and effort," he says.

The notion of when to sell stocks, or cash in on stock options is in many ways unknowable once you have them, Sedunov states.

"Employees are wise to watch the overall trend of the stock market and the trend of their company's stock to help determine the right time to cash in," he says. "Sometimes, the best move is to cash in early, and sometimes it is to cash in later. It's highly dependent on how prices are evolving in the market."

In short, employee common stocks and/or stock options are like any other investment - the best odds of maximizing their financial potential are too hang on to them (as long as the company is doing well), add as many shares or options you can via workplace incentives and treat them as a huge retirement planning gift for the day you call it quits in the workplace.

Do that, and your employee stock package could translate into a financial bonanza in retirement, with all the perks and pleasures that go along with being financially comfortable in your post-working years.

That could be a pleasure you'll do without, though, if you spend your workplace stock capital too soon, and too indiscriminately.

Editors' pick: Originally published March 16.

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