The NASPP Blog

Tag Archives: broad-based plans

June 27, 2017

RSUs Where You Least Expect Them

As part of its IPO last month, manufacturer Gardner Denver granted RSUs worth $100 million to its 6,000 employees, including hourly workers, customer service, and sales staff. According to Bloomberg, “As its executives rang the bell at the New York Stock Exchange, workers learned they would each get shares equal to about 40 percent of their annual salaries” (“KKR Gives Industrial Workers a Piece of the Action“).

There are three things that I find interesting/encouraging about this announcement.

Manufacturing

Broad-based stock awards are common in the high-tech space. According to the NASPP/Deloitte Consulting 2016 Domestic Stock Plan Design Survey, 66% of high tech companies grant RSUs to exempt workers below middle management and 35% grant RSUs to nonexempt employees. In Silicon Valley, the numbers are even higher—77% grant RSUs to non-management exempt employees and 57% grant RSUs to nonexempt employees.

But outside of high-tech, grants of RSUs below middle management are a lot less common. Garner Denver makes gas compressors and vacuum systems and is headquartered in Wisconsin, putting it squarely outside of high-tech and about 2,000 miles from Silicon Valley. This makes their announcement blog-worthy in my book.

Private Equity

Even more surprising is that Gardner Denver is 75% owned by private equity firm KKR. After the grant, employees will own about 10% of the company. Private equity firms are not known for their generosity when it comes to stock compensation programs.

More Than a Token

What I find most interesting about this story, however, is the amount of stock delivered to employees. $100 million worth of stock to 6,000 employees works out to be an average of over $16,000 in stock delivered to each employee. At Gardner’s IPO price of $20, this is an average of over 800 shares per employee. As noted in the Bloomberg article, grants are 40% of employees’ annual salaries, making this more than just a ham sandwich. Each grant is likely to be meaningful to the employee who receives it.

This kind of investment positions an equity plan for success. If (and this is a big “if”) Gardner Denver can execute on the education necessary to help employees value the awards and understand how their efforts can improve the company’s stock price, this plan could be a win-win: improved results for the company and wealth creation for employees. The impetus for the plan came from the head of KKR’s industrials team, Pete Stavros, who is also the chairman of Gardner Denver. Bloomberg notes:

To Stavros, who wrote a paper while a student at Harvard Business School about employee ­share-ownership plans, manufacturers can make good prospects for employee ownership. In tech, for example, success often comes from betting on the right trend or on a single founder or chief executive officer, he says. By contrast, most manufacturers operate in a low-growth environment where they must do “a million things a little better” to excel, such as reduce scrap rates and improve plant productivity. Front-line workers know best where operational inefficiencies exist and how to fix them, and equity ownership lets them share in the fruits of their efforts.

Contrast Gardner Denver’s plan to Apple’s announcement of broad-based RSUs back in October 2015 (“Apple to Offer Broad Based RSUs“). Apple awarded grants of only $1,000 to $2,000 to employees, which, given Apple’s stock price at the time, likely worked out to be less than 10 to 20 shares per employee. Of course, Apple is subject to constraints that Gardner Denver isn’t: a lot more employees, proxy advisors, institutional investors, not 75%-owned by the investment firm that holds the chairman position on their board (who believes in employee ownership), over $100 million granted to their execs alone in 2016 and a history of mega-grants to execs. All of these things limit the number of shares available for grants to employees. But I still have to wonder how those RSUs are working out for them.

– Barbara

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January 11, 2011

Stock Compensation and Academia

It looks like hope of being the next Randall Heron and Erik Lie (of the options backdating study fame) remains alive in the world of academia. Three studies relating to stock compensation have recently been published.

Non-GAAP and Street Earnings: Evidence from SFAS 123(R)

This study looks for patterns in decisions to exclude stock compensation expense from non-GAAP earnings and earnings forecasts.

Somewhat predictably, the study finds that companies exclude stock compensation expense from non-GAAP earnings when doing so presents a more positive financial picture of the company to investors (e.g., increases or smoothes earnings, or helps the company achieve earnings benchmarks). Financial analysts, however, exclude stock compensation expense from earnings forecasts when doing so helps them to better predict future earnings performance. Hmmm, now that I’ve written this, it seems hard to believe a 52-page study was needed to figure this out.

Incentives, Targeting and Firm Performance: An Analysis of Non-Executive Stock Options

In a nice counterpoint to the study “Employee Stock Options and Future Firm Performance: Evidence from Option Repricings,” that I blogged about in August (“Repricing and Company Performance,” August 31, 2010), this study finds that companies with broad-based options programs have better operating performance (based on return on assets), at least in smaller companies and in companies with higher growth opportunities per employee. The authors believe that options encourage cooperation and mutual monitoring among employees and may also serve to attract and retain higher quality employees.

Exercises of Executive Stock Options on the Vesting Date

This study looks at whether executives that exercise their stock options on the vesting date are motivated to do so by confidential information they have about the company. The study concludes that vesting date exercises are more likely motivated by the executive’s need to diversify his/her portfolio.

Time Has Run Out!
All NASPP memberships expire on a calendar-year basis–if you haven’t already, renew your membership for 2011 today.

Got Questions on Section 16?
Alan Dye has the answers. Email your burning Section 16 questions to adye@section16.net and Alan will answer them during his popular, annual Q&A webcast on Section 16.  This year’s webcast will be held on January 25; this is your one chance all year to get answers from one of the nation’s foremost authorities on Section 16–don’t miss it!

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara

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