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Equity Outliers: Are They REALLY Doing That?

February 05, 2020

11:30 AM - 1:00 PM


Banc of California
3 MacArthur Place
Santa Ana, CA 92707
One question that surfaces repeatedly in equity compensation conversations is “what are other companies doing?” Another way to phrase it is “What’s the norm?”

Event Details

One question that surfaces repeatedly in equity compensation conversations is “what are other companies doing?” Another way to phrase it is “What’s the norm?” So many of our approaches and practices seem to center on trying to conform to a median or typical scenario, while the outliers tend to be viewed as not worth consideration. This gravitation towards a middle ground may be fueled by compensation committees who are balancing risk scenarios and a desire to be risk averse. Is the median really the right target? Or should companies be considering a variety of other scenarios beyond the default go-to answer?

Survey data excludes them as “outliers” which bias the data.  Media stories don’t report on them because the details are buried in complex narrative in SEC filings.  Proxy data reports miss them because these equity grant features don’t fit neatly into required disclosures and tables. Professional advisers are tight-lipped due to confidentiality agreements.  And most companies with innovative plan features have no interest in giving away their innovations to competitors.

Most sources of market data tell a story of relatively simple plan design:  3-year and 4-year time-based vesting schedules for stock options and RSUs; performance conditions for executive grants with increasing prevalence of the total shareholder return metric; option strike prices set at fair market value; stock option expiration 90 days after date of termination.  Our daily experience with clients and in-depth analysis of SEC filings tells a different story:  dozens of different time-based vesting schedules, unusual performance conditions such as product releases, increasing prevalence of environmental, social, and governance (“ESG” metrics), extreme premium-priced option grants, price-contingent internal liquidity markets, extended post-termination exercise periods, and more.  This session reveals some of these outliers from the market norms and discusses the design, accounting, and legal implications of these grants and plans. And, the presentation includes new data from the fastest-growing and most innovative industry with many outliers.

Sometimes outliers signal enormous creativity. In other cases, an outlier is born in an attempt to address a particular need of an organization. We need to be mindful when reading media headlines and evaluating “median” information that the data is often more varied than the surface report may suggest. If a CEO receives $30 million in annual pay, this may be a headline in and of itself. However, what makes up that $30 million? What if 97% of that amount was paid in equity compensation rather than cash? What’s the real headline now?

Embracing outliers can extend beyond equity plan design and practices. Evolving one’s career in equity compensation can also involve outliers. Is your company pulling off a complex and completely new feat in award design? Tackling something like that may add to your own personal portfolio of experiences with a variety of stock compensation scenarios.


Fred Whittlesey | Principal Consultant | Compensation Venture Group, SPC

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