The NASPP Blog

This Tuesday, I had the privilege of attending the CEPI’s 5th Annual CEP Symposium at the Santa Clara University. NASPP’s own Robyn Shutak and Barbara Baksa both received 2008 Volunteer Excellence Awards, and Barbara had the exceptional honor of being a “Super-SME”(subject matter expert)! If you are a CEP already, don’t forget that the volunteer efforts by outstanding CEPs like Robyn and Barbara are an essential part of the CEP program. For more information on volunteering, visit the CEPI site for CEP designees at http://www.scu.edu/business/cepi/current_ceps.cfm. If you are still in the process of earning the CEP designation, there are some fantastic opportunities through the NASPP to gain the knowledge expertise you will need like the Stock Plan Fundamentals and the Restricted Stock Essentials.

The keynote address and general session of the CEP Symposium centered on an issue that most companies should be grappling with today: the idea vs. the reality of equity compensation programs. The keynote address delivered by author and professor Hersh Sefrin really highlighted for me not only how psychology dominates our markets, but also the success (or lack thereof) of our equity compensation programs. It ties closely with companies moving to performance-based compensation in an effort to tie principal (shareholder) interests with agent (executive) interests. One thing that stood out for me is the realization that people are more risk averse when they have the potential to lose a “sure gain”. In other words, once an executive has reached a point at which their equity compensation has significant value, they may be less likely to take productive risks with the direction of the company than they would be while they still want to see an increase in the value of their equity compensation. A real way to counter this is to balance out the carrot with the stick; to incorporate a potential for loss or penalty that will create incentive to continue to be innovative and engage in productive risk. For more information on performance-based equity compensation, check out the Performance Plans portal on our site.

The general session, delivered by Sheila Lyons and Miriam Solomon of BNY Mellon, was on communicating the value of your equity compensation program. An essential part of communicating your program is to have a solid idea of what goal (or goals) your company is pursuing with equity compensation. It is important to make sure that the goal of the company is being met by the program. One common example of misalignment that I see is when the company would like to promote an ownership culture across the board as the main goal, but is not able to give grants that are sizable enough to be of any significance to the participant. Another issue to watch out for is conflicting goals within the program. If a company wants to use stock as a part of compensation and as a way to promote an ownership culture, then these two goals may conflict with each other and create difficulty when trying to communicate the value of the program to employees (will you compare it to salary/compensation or promote share retention?). I thought the best idea to come out of this session is that companies should probably be looking at stock plan communications from a marketing viewpoint to promote the value of the program to employees. This means identifying employee needs and promoting education around those needs. Some great ways to do this are to interview or survey employees to understand their experiences with the program, to work with managers so that they can talk with employees in a smaller setting, and to bring financial planning education into the mix through a 3rd party that does not represent the company. Don’t be afraid to get outside your comfort zone and employ some clever marketing when it comes to your equity compensation!