Normally I like to highlight benefits that we offer to NASPP members, but today I'm writing about something we don't have: data on grant sizes. It's something I get asked about occasionally, just frequently enough that I think it would be nice to have blog entry I could point to that explains why we don't have this data.
Why Doesn't the NASPP Offer Benchmarking Data on Grant Sizes
We don't offer this data because you can't look at award sizes in a vacuum. You need to look at awards as part of the company's overall compensation package and include cash-based compensation and other benefit programs in your analysis. Companies that pay heavily in cash are likely to use less stock compensation and vice versa. Thus, you don't want to set award sizes based on peer data without also knowing how the cash compensation (including salary, commissions, bonuses, and other long-term incentives) paid by your peers compares to your own. Doing so could result in severely over-compensating or under-compensating employees.
The same consideration also should be given to other benefit programs. For example, I recently spoke with a company that was implementing a stock award program to replace the company match in their 401(k) program. Because their stock awards are designed to make up for a lack in their 401(k) benefit, I would expect them to grant larger awards to more employees than a similarly situated company that has a more robust 401(k).
Stock compensation should be a component of your overall compensation package--the goal is to figure out what your overall compensation package should be, including cash, stock, and other benefits, and then figure out how much of that overall package you want to be in stock.
While we, here at the NASPP, are the leading experts on stock compensation, I admit that we don't know beans about cash-based compensation and other benefit programs. Because we don't have the expertise to properly evaluate other compensation data, we have decided that it would be inappropriate--perhaps even irresponsible--for us to publish data on grant sizes.
Ultimately, determining guidelines for grant sizes isn't a do-it-yourself project. It's not quite as simple as just looking at some survey data. There are numerous questions as to how grants, particularly stock options, should be valued for compensation purposes (we'll have a great session on this at this year's NASPP Conference--stay tuned for more information when we announce the program later this month). The number of shares you have available in your plan and how amenable your shareholders will be to additional share allocations (which will in part depend on your shareholder demographics, as well as your overhang and burn rate) are additional factors to consider when deciding on grant sizes. You would not want to set guidelines that cause you to run out of shares before you'll be able to get your shareholders to approve an additional allocation of shares to the plan. In addition, any survey data lags behind the market, sometimes considerably. This is an inherent part of the survey process; it takes time to collect the results, analyze, and publish them so that by the time the results are published, the market has already changed.
Once awards are granted, mistakes as to size aren't easy to fix. I encourage companies to work with a compensation consultant who can provide the appropriate benchmarking from peer companies with similar compensation strategies and benefits and can suggest adjustments based on differences in your strategies and other benefits. In addition, a consultant can help you assess the value of your overall compensation package as it compares to your peers, determine the appropriate way to value your own options and awards, and provide input into how the market has shifted since the survey results you are looking at were published. Grant sizes are one of the single most important decisions you are going to make about your stock program; it's worth the investment.
CorrectionIn last week's blog entry ("News on the Proxy Advisors"), I got the name of ISS's parent company wrong. Four times (at least I was consistent). It should have been MSCI (not MCSI). But don't bother going back to look at it now to find the mistakes--I've fixed it.
NASPP "To Do" ListWe have so much going on here at the NASPP that it can be hard to keep track of it all, so we keep an ongoing "to do" list for you here in our blog.
Can Stock Options Discourage Opportunism?
A recent study (“Should You Reward Your CEO with Stock Options?”) looks at wh...Read More
Trends: 2020 Aggregate Share-Based Compensation
Companies looking for data stock plan share usage will be interested in Frederic W. Cook’s Read More
2 Reasons Multiday Averages Make Sense for Grant Sizing
When granting equity awards, close to 90% of companies use a value-based approach to determine grant sizes . Rather than starting with a number of shares, they first...Read More
Equity Design Ideas to Align Outcomes with Objectives
Current market and economic conditions combined with new ways of working are triggering questions on how to approach various aspects of equity – things like how to set and adjust perf...Read More
Market Volatility and Burn Rates
When it comes to the Coronavirus; I got nothin’; the issues in the forefront of the pandemic—wages, teleworking, health insurance, etc.—are not topics I know much about. But I ...Read More