Earlier this year, I presented five trends in restricted stock and unit awards. For today’s blog, I present a second installment in what I can now officially call a “series”: six trends in performance awards from the 2016 Domestic Stock Plan Design Survey cosponsored by the NASPP and Deloitte Consulting.
Trend #1: Performance awards are on the rise for executives.
Over the past four survey cycles, we’ve seen a more than 100% increase in the use of performance awards at the NEO and senior executive levels. For NEOs, usage has risen from 37% of respondents in 2007 to 80% in 2016. For senior execs, usage has risen from 32% of respondents in 2007 to 69% in 2016. Very few companies grant performance awards below the ranks of senior execs.
Trend #2: Performance-based options are not popular.
The vast majority of respondents (95%) issue full-value performance awards paid out in stock. Only 19% issue awards paid out in cash and only 8% issue performance-based options. I suspect this because when performance options are underwater, they don’t provide much of an incentive.
Trend #3: TSR is hot right now.
Usage of TSR as a performance metric has increased 80% since our 2010 survey, up from 29% to 52% of respondents. There is a lot of variation in practice when it comes to choosing performance metrics; this is the first time in the history of the survey that any performance metric is utilized by more than half of our respondents.
Trend #4: Three is the magic number when it comes to performance periods.
The majority of respondents (78%) measure performance over a three-year period. I suspect this is because ISS (and possibly other proxy advisors/investors) encourage use of a three-year performance period.
Trend #5: Multiple metrics are common.
Just over 60% of respondents report that their performance awards are subject to more than one metric: two metrics is most common but 19% use three or more.
Trend #6: Performance is typically measured at the corporate level.
Just under 90% of companies report that they measure performance at the corporate level only, rather than incorporating departmental, team, or individual goals. At 62% of respondents, the metrics for performance awards are different than those used for the company’s annual incentive plan (another 20% use a combination of annual incentive plan metrics and other metrics).