The full results from the 2016 Domestic Stock Plan Design Survey, which the NASPP co-sponsors with Deloitte Consulting LLP, are now available. Companies that participated in the survey (and service providers who weren’t eligible to participate) have access to the full results. And all NASPP members can hear highlights from the survey results by listening to the archive of the webcast “Top Trends in Equity Plan Design,” which we presented in early November.
For today’s blog entry, I highlight ten data points from the survey results that I think are worth noting:
Full Value Awards Still Rising. This survey saw yet another increase in the usage of full value awards at all employee levels. Overall, companies granting time-based restricted stock or units increased to 89% of respondents in 2016 (up from 81% in 2013). Most full value awards are now in the form of units; use of restricted stock has been declining over the past several survey cycles.
Performance Awards Are for Execs. We are continuing to see a lot of growth in the usage of performance awards for high-ranking employees. Companies granting performance awards to CEOs and NEOs increased to 80% in 2016 (up from 70% in 2013) and companies granting to other senior management increased to 69% (from 58% in 2013). But for middle management and below, use of performance award largely stagnated.
Stock Options Are Still in Decline. Usage of stock options dropped slightly at all employee levels and overall to 51% of respondents (down from 54% in 2013).
TSR Is Hot. As a performance metric, TSR has been on an upwards trajectory for the last several survey cycles. In 2016, 52% of respondents report using this metric (up from 43% in 2013). This is first time in the history of the NASPP’s survey that a single performance metric has been used by more than half of the respondents.
The Typical TSR Award. Most companies that grant TSR awards, use relative performance (92% of respondents that grant TSR awards), pay out the awards even when TSR is negative if the company outperformed its peers (81%), and cap the payout (69%).
Clawbacks on the Rise. Not surprisingly, implementation of clawback provisions is also increasing, with 68% of respondents indicating that their grants are subject to one (up from 60% in 2013). Enforcement of clawbacks remains spotty, however: 5% of respondents haven’t enforced their clawback for any violations, 8% have enforced it for only some violations, and only 3% of respondents have enforced their clawback for all violations (84% of respondents haven’t had a violation occur).
Dividend Trends. Payment of dividend equivalents in RSUs is increasing: 78% of respondents in 2016, up from 71% in 2013, 64% in 2010, and 61% in 2007. Payment of dividends on restricted stock increased slightly (75% of respondents, up from 73% in 2013) but the overall trend over the past four surveys (going back to 2007) appears to be a slight decline. For both restricted stock and RSUs, companies are moving away from paying dividends/equivalents on a current basis and are instead paying them out with the underlying award.
Payouts to Retirees Are Common. Around two-thirds of companies provide some type of automated accelerated or continued vesting upon retirement (60% of respondents for stock grants/awards; 68% for performance awards, and 60% for stock options). This is up slightly in all cases from 2013.
Post-Vesting Holding Periods are Still Catching On. This was the first year that we asked about post-vesting holding periods: usage is relatively low, with only 18% of companies implementing them for stock grants/awards and only 13% for performance awards.
ISOs, Your Days May be Numbered. Of the respondents that grant stock options, only 18% grant ISOs. This works out to about 10% of the total survey respondents, down from 62% back in 2000. In fact, to further demonstrate the amount by which option usage has declined, let me point out that the percentage of respondents granting stock options in 2016 (51%) is less than the percentage of respondents granting ISOs in 2000 (and 100% of respondents granted options in 2000—an achievement no other award has accomplished).
Next year, we will conduct the Domestic Stock Plan Administration Survey, which covers administration and communication of stock plans, ESPPs, insider trading compliance, stock ownership guidelines, and outside director plans. Look for the survey announcement in March and make sure you participate to have access to the full results!
Retirement provisions constituted the most anticipated area of results in the 2013 Domestic Stock Plan Design Survey. I received several requests for a peek at the preliminary results in advance of our release of the final results. Now that the final results are available, I thought a summary of the data might be of interest to my readers.
The 2013 Domestic Stock Plan Design Survey Results
Automatic Payouts to Retirees: Just over 50% of respondents provide some sort of automatic payout to retirees–either full or pro-rata accelerated or continued vesting. Depending on the type of grant, another 5% to 17% provide a discretionary payout or some other type of payout.
Accelerated vs. Continued Vesting: For time-based restricted stock/units, acceleration of vesting (28%) edges out continuing to vest awards after retirement (23%). But, for stock options, the opposite is true–continued vesting upon retirement (27%) just edges out accelerated vesting (24%). And, for performance awards, continuing to vest (in other words, paying the awards out to retirees only at the end of the performance period rather than at retirement) wins by a landslide (44% vs. 8% or respondents). This makes sense–performance awards that pay out at retirement are problematic for a host of reasons: for starters, they provide the wrong incentive to potential retirees and don’t qualify as performance-based compensation under Section 162(m).
Full vs. Pro-Rata Vesting: For time-based awards, full vesting (vs. pro-rata vesting) is most common: 30% vs. 21% of respondents for RS/RSUs and 41% vs. 10% of respondents for stock options. But for performance awards, pro-rata vesting is more common (34% of respondents vs. only 18% that provide full vesting).
To be continued…tune in next week for the exciting conclusion to our foray into the world of retirement.
The NASPP’s 2014 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte Consulting LLP) is now open for participation. This is the industry’s most comprehensive survey on stock plan administration, easily worth the cost of NASPP membership. Seriously–consulting firms charge upwards of $1,000 to participate in surveys that offer less data with fewer respondents. We let you participate for free–but issuers have to participate to receive the full survey results. Don’t put it off; you’re going to want this data and you only have until April 25 to complete the survey.
For today’s blog, I highlight just a few of the many data points in the survey that I am eagerly anticipating an update on. These are hot topics today and I’m looking forward to finding out where current practices stand with respect to them:
The Latest Trends in ESPPs: Rumor has it that companies have been implementing new ESPPs and have been enhancing the benefits (discount, lookback, etc.) in their existing ESPPs. We saw a decline in both the number of ESPPs and the benefits offered under ESPPs in the last survey, so I’m very excited to see if this trend really has turned around.
Automatic Exercise on Expiration: For the first time ever, the survey collects data on this emerging practice. I think it makes a lot of sense so I’m very interested to see what percentage of respondents have implemented this program.
Rule 10b51 Plans: Has the recent negative attention that Rule 10b5-1 plans have received from academics and the media impacted the use of these plans? My money says no; if anything, I expect usage to have increased a bit; we’ll see if I’m right when the survey results are published.
Stock Ownership Guidelines: The 2011 Stock Plan Administration survey saw a 35% increase in the percentage of companies that have stock ownership guidelines, a remarkable increase–far higher than we expected based on responses to the 2007 survey. If everyone that said they were considering implementing stock ownership guidelines in 2011 survey did actually implement them, close to 80% of all respondents will now have these guidelines in place.
Social Media: The topic du jour when it comes to educating employees these days is the use of social media (Facebook, Twitter, LinkedIn, etc.) I think these tools have significant potential for reaching younger employees. I look forward to finding out what percentage of respondents use them now and setting a baseline that we can use for comparison purposes in future years.
April 25 will be here before you know it and you are definitely going to want to have access to the full survey results. If you are an issuer, register to participate today. (Service providers that are not eligible to complete the survey can access the full survey results at no cost, provided they are members of the NASPP. This access is available to service providers only; issuer companies must complete the survey to access the full survey results.)
The 2013 Domestic Stock Plan Design Survey is now open for participation. This is the industry’s most comprehensive survey on stock plan design, easily worth the cost of NASPP membership. Seriously–consulting firms charge upwards of $1,000 to participate in surveys that offer less data with fewer respondents. We let you participate for free–but issuers have to participate to receive the full survey results. Don’t put it off; you’re going to want this data and you only have until April 5 to complete the survey.
For today’s blog, I highlight just a few of the many data points in the survey that I am eagerly anticipating an update on. These are hot topics today and I’m looking forward to finding out where current practices stand with respect to them:
Performance Award Usage: In the 2010 survey, usage of full value awards largely caught up to usage of stock options. Usage of performance awards had increased significantly, but still lagged a bit. I am very curious to see if performance award usage has plateaued or if usage of these awards will rival that of traditional service-based awards. The 2010 survey also revealed that companies were granting performance awards down further into the organization. I’m not sure that performance awards work well below management; I’m very interested to see if this trend continues or if companies have pulled back on their performance award programs.
Clawbacks: Only 32% of respondents indicated that awards are subject to a clawback provision. This seemed surprisingly low, given the shareholder optics on this issue, as well as pressure from regulators (a la SOX and Dodd-Frank). When we conducted the survey in 2010, Say-on-Pay had not yet gone into effect. Now that we’ve completed two rounds of Say-on-Pay votes and are in the middle of a third, I’m curious to see where clawbacks come out.
Double-Triggers: Almost 60% of respondents indicated that vesting is automatically accelerated on a change-in-control and only 38% of respondents reported that awards were subject to a double-trigger. I was very surprised to see such low usage of double-triggers and I’m very interested to see if this data reverses itself in the new survey.
Flexible Share Reserves: Only 17% of respondents in 2010 reported that their stock plan had a flexible share reserve. I’ve heard a lot of consultants promoting flexible share reserves and I agree that they make a lot of sense, so I was surprised that usage was low and even more surprised that it really hadn’t changed since we last conducted the survey in 2007. I’m intrigued to see if usage remains flat again in 2013 or if this plan feature has started to take hold.
Deferrals: Only 22% of respondents in 2010 reported that they allowed (or required) deferral of payout of RSUs. I think deferral programs offer some key advantages, including tax planning opportunities for award holders and easier enforcement of clawbacks and stock ownership guidelines for companies. I’m curious to see if usage of deferral programs has increased in 2013.
– Barbara
P.S. (can I do a PS in a blog?) – If you missed my cat, Kaylee’s appearance in the blog last week, you should check it out for your daily quota of cute.
I hear it everyday (okay, just about everyday) – companies ask about what the other companies are doing. What types of equity are being issued? How are they handling overhang? What new performance related trends are emerging? I’ve come to an astounding conclusion (yes, I’m exaggerating) – drum roll please – I don’t think the “need to know” about what everyone else is doing is ever going to go away. For all you companies who find yourself in a “want to know” status, there’s new information coming, in the form of the NASPP/Deloitte 2013 Domestic Stock Plan Design Survey. In today’s blog I’ll tell you what you need to do to get the full survey results, and I guarantee you won’t want to miss out on such valuable information.
Data Doesn’t Lie
Results from industry surveys are one of the most valuable acquisitions you can make for your stock administration toolbox. I would say this no matter where I work – it’s the plain truth. It’s often suggested that, as plan administrators, we insert ourselves into plan design and other key discussions involving the use of equity compensation. Fighting for a seat at the table is one thing, but once you get there you need to establish sound credibility with your peers and higher ups. How do you do that? You do it two ways: first by sharing your personal experience (which is no doubt important) and second, you come with data – data on your plans and industry data. How great would it be to hear a proposed plan design element, and be able to respond by saying “actually, the majority of companies are not implementing that type of feature”, or, alternatively “that’s exactly the trend we’re seeing in the industry – 70% of companies report having that feature.” The same scenario rings true for service providers. More and more, issuers are calling on their third parties for opinions and a general “lay of the land” when it comes to considering key decisions. I Want It, How do I Get It?
NASPP members will be able to access the results of the 2013 Domestic Stock Plan Design Survey in the following ways:
Issuers: You must complete the full survey by April 5, 2013 in order to access the results.
Service Providers: Those providers that are not eligible to complete the survey will be able to access the survey results for free, if they are NASPP members. This only applies to service providers – issuers must complete the survey in order to receive the results.
Not an NASPP member? Non members who complete the survey get a 10% discount off an NASPP membership.
How to Get Started
Don’t delay – you only have until April 5th to complete the survey. To get started, register to complete the survey today. Upon registering, you will receive an email within three business days that contains your login to the survey. Once you receive your login, you can immediately begin to complete the survey.
Now is your chance to participate in this important survey and end up with solid data to aid in your plan design efforts.