The NASPP Blog

I admit it – I’m a trend watcher. I like seeing where things are headed and what’s new and/or different. So my attention was captured when I came across a recent analysis of share utilization within Fortune 500 companies. In their annual review of equity incentive practices at Fortune 500 companies, Towers Watson revealed some interesting trends. I highlight some of the findings in today’s blog.

In Case it hasn’t Been Said Enough: Full Value Awards are here to Stay

The trend has been around for a while now, and this analysis seems to reaffirm that yes, more and more companies continue to migrate towards a model that heavily incorporates and even emphasizes full-value awards. “Full-value awards now comprise 47% of the number of shares granted and 75% of the grant-date fair value of all equity awards at the typical company, compared to 29% of the shares granted and 57% of the value five years ago.” While a significant majority (75%) of the Fortune 500 companies offer a mix of equity vehicles in their compensation programs, the percentage of companies granting only full-value awards increased from 16% to 19%, while the percentage of companies granting only appreciation awards decreased from 5% to 3% in 2010. The percentage of companies not granting equity awards remained constant at 3%. For companies granting a variety of equity vehicles in 2010, the median mix was weighted 53% appreciation awards (e.g. stock options) and 47% full-value awards (e.g. restricted stock awards, restricted stock units), based on the number of shares awarded. According to Towers Watson, these figures represent a seven-percentage-point shift from 2009 to 2010 in favor of full-value awards and an 18-percentage-point shift between 2006 and 2010.These figures suggest that full-value awards are still continuing to gain in popularity and that trend seems likely to continue.

Fewer Shares Issued: A Good Sign?

Another interesting result is a decline in run rate, with a 23% reduction at the median in 2010 over 2009, and preliminary results from 2011 sampling indicating that the downward trend will continue. A full two-thirds of the Fortune 500 companies sampled reported issuing fewer shares in 2011 than in 2010. This reverses the trend seen in 2009 where many companies granted more shares in an effort to mitigate the declining value of other awards. Could it be that companies becoming more confident about market conditions and possible signs of life in the economy?

Yes, Stock Options Can Generate Money!

It was heartening to see that stock option exercises were up in 2010. According to the analysis, an aggregate of 90% more stock options were exercised in 2010 than in 2009. I’m sure much of that is attributable to more favorable market conditions, but regardless of the reason, it’s nice to see employees reaping tangible benefits from their equity awards. In addition to recognizing and addressing the perceived value that employees place upon their equity awards, some real financial benefit (aka cash in hand) is always helpful in achieving the goals of the equity programs.

There are several other fascinating bits of information in the report, but alas, I’m out of time and room to list them all. You can find the full summary in our Surveys and Studies portal by clicking here.

– Jennifer