Equity compensation is often a sexy, headline grabbing element of total compensation, but the magic to using equity effectively may be buried in the ho-hum policy binder. Indeed, grant policies often hold the keys to using equity to truly meet business objectives while fostering equality. So, grab your scuba mask and join me for deep dive on grant practices, compliments of the most recent installment of Fidelity and NASPP’s Equity Compensation Outlook series.
The survey covers a broad range of topics, including grant frequency, the mechanics of grant recommendations, manager discretion, LOA practices, and pay equity. I’ve picked a few of my favorite findings for today’s blog entry, but for certified equity compensation geeks, you don’t want to miss NASPP's Sept 15 webinar where Barbara Baksa and I will be joined by Joanne Montgomery of Syneos Health to unpack all the details and, for issuers, you can still complete the survey for access to the data for your own slicing and dicing.
If you’ve been keeping up with this series, you’ll recall that I sometimes call out Technology/Sciences companies, as their practices can veer off from the pack when it comes to equity. And, since these companies are disproportionally located in the West, geographic and sector results are sometimes blurred. And this survey is no different in this area. Sheesh.. it is almost like there could be a lot of cross pollination of like companies in a tight valley of silicon. Who’d of thought?!?!?
While it is no secret that long term incentives are discretionary, it may be a surprise to learn just how much discretion is put into managers hands. 80% of companies allow managers discretion over at least one type of award (and that bumps to 90% for technology and sciences companies). Discretion is most common with retention and annual grants, and even where it is less common with promotion and new hire grants, more than half of managers have some type of discretion.
For most grant types (annual, new hire and promotion), the size of the grant is most often the type of discretion that managers have. And, with retention grants, managers are only slightly more likely to have discretion over grant recipients than award size.
Because who receives grants and how large the grants are has a major impact on employee compensation, the good news is that a full 87% of companies provide some manager training on how to use their discretion over grants (with west and technology/sciences most likely to provide training), and 100% of companies who give managers discretion review grant recommendations before submitting to the board for approval, with this review most often managed by HR.
When it comes to retention awards, very few companies rely on statistical analysis to identify at-risk employees, and instead leave grant decisions to managers. This could be a risky practice since poor management is a primary reason employees leave their jobs. And, while reviewing grants where discretion is used is a good thing, a not insignificant number of companies rely on the CEO, senior executives, or the stock plan administration team to review manager discretion, and I have to wonder if those roles have all the information needed for a fair assessment of discretion exercised.
Just over 80% of companies issue make-whole/buy-out grants, with this practice slightly less common for technology/sciences companies than other industries. 83% of these companies require new hires to document their forfeited awards. I’m wondering if I can get my hands on the list of the 17% that don’t require documentation so I can check to see if they have any job openings! ;-)
When I look at the amount of discretion available, and the fact that just under 60% of respondents include equity awards in their fairness analysis of overall compensation, I wonder if the flexibility and discretion built into these grant policies could have some unintended consequences.
These findings can help companies benchmark their grant practices and spot opportunities for improvement. Want to learn even more? Check out Barbara Baksa’s video, “The Outlook on Grant Policies,” in her popular 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.
How to Ensure Your Grant Procedures Are Scrutiny-Proof
Imagine a company grants stock options and then its stock increases by 1000% on the day following the grant. Suspicious? Or just a nice deal if you can get it?
Issuing Equity Awards: Administrative Issues to Consider
The process of making stock grants doesn’t vary much based on the reasoning behind the grants. Retention grants made during a chaotic climate aren’t much different than a compan...Read More
What Happens to Equity Awards in a Furlough?
In a volatile business climate, it’s not uncommon for employers to bridge the gap of uncertainty by placing employees on a furlough, rather than permanently terminating the employment...Read More
In the Courts: Are Stock Plan Provisions Too General?
A recent case in the Canadian courts raises some questions about whether stock plan provisions need to be more specific.
Before I jump in to the nuances of this case, I want to share...Read More
Implementing an Auto Exercise Program for Stock Options
Companies that grant stock options know that there are a few core challenges that have maintained their existence throughout the life span of these types of arrangements. Among them: how to handle ...Read More