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Taking the Pulse of Performance Awards

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Taking the Pulse of Performance Awards

In the panic of the pandemic last year, many companies pondered the fate of their performance awards.  It turns out much of the concern about payouts was misplaced, as many companies paid out at or above target. But that doesn’t mean performance anxiety isn’t a worthy exercise!  Our findings show other areas of performance-based compensation that may deserve their fair share of attention.   

To help companies make better decisions about their performance awards, the NASPP and Fidelity worked together to help uncover what is really happening with performance awards with a 360° outlook on the current and future state of performance-based equity awards. With hot-off-the-press June 2021 data, I’m sharing some of the highlights here.  What did we learn?

Not All Sectors Are Created Equally

It probably isn’t a surprise to most, but things are just different for technology and life sciences companies:

  • Companies in these sectors outperformed other sectors with respect to their performance payouts, with nearly three out of four companies paying out at or above target, compared to just over half of companies in other sectors.   
  • Technology and life science companies are clearly bullish on performance awards, with these sectors more than twice as likely as others to indicate that they granted more performance-based equity to both NEOs and other senior execs compared to companies in other sectors in the current fiscal year.

Huh?

Looking for a place to make an impact on your company’s performance awards?  There are lots of opportunities!  Participant understanding is a great place to start. 

  • There appears to be a significant comprehension gap between NEOs and other senior management when it comes to performance awards. Over 90% of respondents report that NEOs completely (49%) or mostly (42%) understand their performance awards. For other senior management, however, this drops to 64%; with only 7% of respondents reporting that senior execs completely understand their performance awards and 58% reporting that they mostly understand their awards.
  • Over half of respondents do not have a set schedule for updating award holders on progress towards the targets (17%) or do not provide these updates at all (35%).

Tell Me More

Our survey allowed us to drill down into some other fascinating topics. 

  • Compensation Consultants: In surprising (to me at least!) results, 60% of respondents report that their board/comp committee uses the same compensation consulting firm as HR. This practice is significantly more prevalent among high tech/life sciences companies (73%).
  • Performance Pay Bonanza (or Bust)?  The majority of respondents (72%) focus only on performance award outcomes. But, when the company is performing strongly, other components of compensation (short-term incentives, other equity awards) are likely to produce higher payouts, potentially resulting in outsized compensation (and, vice versa, when the stock price is down). Taking a more holistic approach will provide a truer picture of compensation outcomes.
  • Special Retention Grants: Close to 60% of respondents did not issue special retention grants during 2020. This trend was consistent among high-tech and non-high-tech companies. Where companies did issue retention awards, they were most often for other senior management and middle management employees.
  • Performance Targets: Most respondents (80%) report that the same targets are used for all performance awards. High-tech/life sciences companies were more likely to vary targets by position than other companies (19% vs. 12%).

These findings can help companies benchmark their performance practices and spot opportunities for improvement.  Want to learn even more? Check out Barbara Baksa’s five-minute video, “The Outlook on Performance Awards,” in her binge-worthy Equity in Brief series.  Enjoy!

As head of Fidelity Stock Plan Services' Industry Relationships and Thought Leadership, Emily drives connections with the stock plan industry and focuses on developing data-driven insights on equity compensation plan design, usage, and effectiveness based on quantitative and qualitative research to help plan sponsors make more informed decisions about their equity plans and processes.

With over 20 years in the industry, Emily is recognized for deep knowledge of and enthusiasm for equity compensation. She is a frequent speaker and author on topics to help educate employers, advisors, and the media. Emily is a board member for the Certified Equity Professional Institute, member of the NASPP Executive Advisory Committee, and a recipient of the NASPP Individual Achievement Award. She is a Certified Equity Professional and holds Series 7 and 63 securities registrations.

Results based on 2021 research by the NASPP on performance awards.
The NASPP and Fidelity Investments are not affiliated.
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