Inflation and Equity Compensation: What to Know

The surging inflation rate is disrupting every sector of the United States economy. While you may be receiving a cost of living increase for your salary, your equity compensation could be taking a hit or skyrocket. It’s difficult to gauge how inflation is affecting your equity compensation. Continue reading for what to know about inflation and equity compensation.

The rising inflation rates have paired well with the ongoing Great Resignation of 2022 to shift more power towards the employees. Employees have been asking for higher wages and better compensation. Many companies are looking to provide their employees with equity compensation to sweeten the deal of staying with their company. Salary increases can only get people so far when inflation is rising at this rate.

Equity compensation can be a win-win situation for employers and employees. But how does inflation impact your equity?

Currently, as the inflation rate continues to rise, the stock market is falling. If you have value stock, your stock is problem performing well. If you have growth stock, your stocks will perform better in times with low inflation. While many will take this as a sign to run from the stock market, it can also be seen as a great time to hold onto your employer’s stock. The last thing you want to do is sell stock at the bottom if you are within the vesting period. Equities have shown, throughout history, that stock is a great way to outrun inflation. As long as the average annual rate of return is higher than inflation, you are staying ahead.

While the stock market is a great way to stay away from inflation, this is also a great time to analyze the diversity of your stock portfolio. Times of high inflation shows the risk of investing in equities. One of the best ways to shelter your overall investment portfolio is to have balanced, well-diversified investments that will not all tank in a stock market swing. The more concentrated your stock portfolio is in one industry, the riskier your portfolio is overall.

If your equity compensation is the main piece of your investment portfolio, it’s time to be mindful and make some new investments. This does not only include buying the stock of companies in different industries but investing in different asset classes such as bonds and real estate.

The stock market and the economy has it’s ups and downs so it is important to have professional guidance on how these changes affect your finances. Our advisors at Eagle Grove Advisors are more than happy to assist in wading you through these tough times. Schedule a consultation with us today to get started!


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