Our Take
Equity is supposed to bind employees to outcome, but ignorance turns it into a retention risk disguised as a benefit.
Why it matters
Private companies lean on equity as core compensation. If employees don't understand what they hold or how to use it before a liquidity event (IPO, acquisition, secondary sale), both the financial upside and the retention promise evaporate—and the true knowledge gap is likely double what HR leaders report.
Do this week
HR leaders: audit your equity education materials and deliver them before Q2 2025 so employees can model scenarios and ask questions before a liquidity event arrives.
The equity knowledge gap is wider than HR admits
Private company employees see equity compensation as deferred personal wealth. According to Morgan Stanley at Work's State of the Workplace Financial Benefits Study, 67% of private company employees and 88% of HR leaders say a future liquidity event or IPO matters to them. But timing remains opaque. PwC's 2026 market outlook notes that investors remain selective, and companies need scale, profitability, and discipline to go public on favorable terms. For equity holders, that prolongs the holding pattern.
The knowledge problem runs deeper than official channels reveal. One in five HR leaders (20%) report hearing employees express worry or concern about not knowing how to use equity compensation or employee stock purchase plans (per Morgan Stanley at Work). The catch: research shows employees are reluctant to raise financial concerns at work. If 20% of HR leaders heard it directly, the true proportion experiencing confusion is almost certainly higher.
The perception gap between employees and HR is stark. Only around one-third of employees (33%) say helping maximize equity compensation is essential to meeting their financial goals, compared to about half of HR leaders (50%) who say the same. This gap matters because when liquidity arrives, employees must act on assets they may not fully understand.
Ignorance undermines retention and the equity promise itself
An employee who doesn't understand their equity is less likely to feel its value. This undermines retention, engagement, and the core promise private company equity is supposed to deliver: shared upside for deferred cash.
The timing risk is acute. HR leaders face a compressed window to prepare employees. A liquidity event (IPO, acquisition, secondary sale) forces employees from anticipation into decision-making. Without financial literacy infrastructure in place beforehand, the transition is disorienting and often costly. Eighty-four percent of employees believe employers should assist with financial issues, yet 34% have never considered asking their employer for help (per Morgan Stanley at Work). That trust gap suggests education must be proactive, not reactive.
For private companies, equity is often a central pillar of the compensation narrative. When it fails to land as intended, the risk cascades beyond one cohort. Employees who feel blindsided lose confidence in management's communication. Departures spike. And future hiring depends on the company's reputation for transparency around equity.
Close the gap before liquidity arrives
HR teams at private companies should treat equity education as a permanent, not episodic, function. This means:
- Publish plain-language guides explaining vesting schedules, strike prices, and the mechanics of common liquidity scenarios (acquisition, IPO secondary).
- Schedule annual financial literacy sessions, not just during onboarding or rumored exit periods.
- Create a low-friction way for employees to ask equity questions confidentially (not through general HR channels).
- Model scenarios: show employees what their grant is worth under different valuations and timelines.
The cost of this work is trivial compared to the retention risk of employees who hold equity they never understood and sold it, bought it, or lost it without clarity. The window to build infrastructure closes the moment a liquidity event is announced.