As announced yesterday, we’ve extended the deadline to participate in the Domestic Stock Plan Administration Survey that the NASPP co-sponsors with Deloitte Consulting. For today’s blog entry, I have six things I am excited about learning from this year’s survey.
Domestic Mobility Compliance: New this year, we’ve added questions on tax compliance for domestically mobile employees. This is an area of increasing risk and I’m curious to learn how far companies have come in their compliance procedures.
ESPP Trends: This survey takes an in-depth look at the design and administration of ESPP plans. I hear rumors of increased interest in ESPPs—both in terms of companies implementing new plans and enhancing the benefits in their existing plans; I’m excited to see if this plays out in the survey results.
Stock Plan Administration Staffing: This is the only survey I’m aware of that collects data on how stock plan administration teams are staffed, the department that stock plan administration reports up through, and how companies administer their plans. It is always intriguing to see the trends in this area.
Ownership Guidelines: The prevalence of ownership guidelines has increased dramatically in the last decade, with 80% of respondents to the 2014 survey reporting that they have these guidelines in place. Has this trend topped out or will we be reaching near universal adoption of ownership guidelines in this survey?
Rule 10b5-1 Plans: These trading plans have become de rigueur for public company executives, with 84% of respondents to the 2014 survey allowing or requiring them. We’ve expanded this area of the survey to capture more data on policies and practices with respect to these plans.
Director Pay: The survey reports the latest trends in the use of equity in compensating outside directors. I’m particularly interested in seeing what percentage of respondents indicate that they have imposed a limit on the number of shares that can be granted to directors. This is a best practice to avoid shareholder litigation but adoption of it was low in the 2014 survey—have we made progress on this in the past three years?
If you are interested in these trends, too, you’re going to want to participate in the survey so that you’ll have access to the results. It’s not too late to participate, but you have to do so by the end of this week. We’ve already extended the deadline once; we can’t extend it again. Register to participate today!
– Barbara
* Only issuers can participate in the survey. Service providers who are NASPP members and who aren’t eligible to participate will receive full access to the published results.
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.)
Over the past five to seven years or so, the prevalence of stock ownership guidelines within organizations has evolved from an emergent to standard practice. By now most of us are comfortable with the concept of stock ownership and share retention guidelines, along with their application to (mostly) executive management.
When Intel Corporation recently disclosed that they had revamped their compensation structure, a segment of the changes caught my attention. Intel has expanded the application of their stock ownership guidelines from 50 to 350 senior leaders in 2014. Could this be the start of a movement towards more mainstream stock ownership requirements within organizations?
89.4% of Fortune 100 companies publicly disclosed executive stock ownership policies in 2012
The majority of Fortune 100 companies (55.9%) have both stock ownership guidelines and retention policies, versus one or the other
82.3% of analyzed companies use a multiple of base salary as the guideline structure
85.2% of companies allow a 5-year accumulation period to satisfy their guidelines
Data collected from the NASPP’s 2011 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte Consulting) supports the trends identified above. In the NASPP survey, only 12% of surveyed companies said that their stock ownership policies applied to “other management” (meaning levels below the CEO/CFO, NEO and other senior management levels of the organization). It looks like Intel is now venturing into that territory of “other” management, and I’m curious to know if the reach of ownership policies is now beginning to trend into that category of organizational leadership. In 2011, 17% of respondents in the NASPP/Deloitte survey reported that they had increased the number of employees subject to their policies within the past 3 years. Those aren’t necessarily landslide numbers, but that was also during a time when share ownership guidelines were just gaining a foothold in the upper echelons of corporations.
The trend radar is up, and we’ll be keeping an eye to see if other companies are following suit into expanding the reach of their stock ownership guidelines. If you’re an issuer, take the informal poll below and be one of the first to see if there are signs of a new reach for stock ownership requirements.
Our 20th Annual Conference is over, and, I’ll admit, I’m still recovering from the buzz. When I say buzz, I mean the literal energy and enthusiasm that seems to vibrate throughout every conference. It was great to engage with so many members, as well as listen in on sessions that are so timely and relevant to the challenges we face today. Having been to a dozen conferences over the years, I’d rank this year’s conference as our best ever. I won’t recap the full conference in today’s blog (you’ll have to wait for our next Advisor edition for that), but I wanted to share my observation on some of the top topics trending in our world of stock compensation based on things seen and overheard.
The Unofficial Top 5
1.Performance Plans and associated Valuation Strategies: Performance plans are migrating from plainer vanilla (I can’t use the term plain vanilla, because I don’t know of a performance plan that was that simple to administer) to more creative approaches (things like the use of relative TSR). In conjunction with new pay for performance models, the relative accounting impact and considerations are worth understanding.
2.Say-on-Pay: As we’ve passed through the peak of the second annual proxy season since the implementation of Say-on-Pay, it’s still a very much a hot topic. With more companies receiving negative Say-on-Pay votes from shareholders in 2012 than 2011, companies are more invested in ensuring their disclosures will withstand shareholder scrutiny.
3.Global Administration and Mobility: Learning to navigate the intricate nuances of managing global and mobile employee populations continues to be top priority for stock plan professionals. Sessions on global administration always rank highly on our conference attendance lists, and this year was no different.
4. Executives, Executives, and Executives: Handling tricky issues and situations relatives to executives and their compensation ranks high on the interest scale. Things like terminations and pay for performance top the list.
5. Stock Ownership Guidelines: I’ve heard many people talking about the rapid trend towards adopting stock ownership guidelines. If you work for an issuer (or a vendor who provides direct support to issuer stock plan administrators) and are asking “what are stock ownership guidelines?”, you’d better find out quick (in short, they are guidelines implemented by a company regarding minimum amounts of share ownership certain employees must attain and retain.) The vast majority of public companies report having such guidelines in place, and, in my opinion it’s a matter of “if” and not “when” for the stragglers who haven’t implemented guidelines yet.
Many of you likely have some or all of these topics on your radar list. These are definitely trends to observe in the coming months; areas where we’ll likely see lots of activity, new ideas, and administration challenges.
Each study was comprised of U.S. public companies across a variety of sectors. Frederic W. Cook’s study spanned 240 companies, and The Conference Board (et al) surveyed 334 companies.
Size Does Matter
In general, one “rule of thumb” was confirmed: that “compensation levels vary primarily based on company size, while the structure of compensation is influenced by both company size and industry.” (Frederic W. Cook). Both studies presented similar results regarding the prevalence of director equity compensation by industry. While not every industry had a clear trend in terms of cash to stock ratios, the financial services industry clearly utilized the least amount of equity (less than 45%) in its compensation approach, and the technology sector utilized the most: approximately 70% of director compensation in this industry is stock based, according to both reports. When it comes to the blend between cash and stock compensation, it turns out company size does seem to be a factor, more so than industry. Larger companies were more likely to have a mix of cash, stock awards and stock options. Smaller companies reflected a more cash heavy compensation mix.
Stock Awards Rule!
The dominant equity compensation vehicle in use for directors across the board (no pun intended!) is full value stock awards (or units). Stock option grants to directors are minimal in most industries (utilized by less than 20% of retail, financial services and industrial companies, according to Frederic W. Cook). The technology sector’s trends were a bit different: companies in this industry predominantly issue stock awards as part of the compensation mix, yet, about 42% of them also issue stock options to their directors. That’s probably not surprising, given that the technology sector has long been assertive in emphasizing various forms of stock benefits as a component of overall compensation.
The Trend Continues: Stock Ownership Guidelines
We’ve previously blogged about the continuing uptick in the number of companies adopting share ownership guidelines for executives and directors. Both studies reported that a majority of respondents (greater than 50%) had stock ownership guidelines for directors in place. According to The Conference Board (et al), the most widely utilized type of guideline is that based on a multiple of the director’s annual retainer. One study noted a smaller related emerging trend – the implementation of a retention ratio or holding period in combination with their ownership guidelines. About 15% of companies analyzed in the Frederic W. Cook study reported having some form of retention ratio or holding period; with 12% utilizing such ratios or holding period in direct conjunction with their ownership guideline policies. This is a trend to watch, and seems very likely to continue to gain momentum.
A Sensible Approach to Stock Ownership Guidelines By Doreen Lilienfeld of Shearman and Sterling
In recent years, there has been significant discussion concerning the terms of stock ownership guidelines and stock retention requirements for directors and executive officers. Shareholders want to know that directors and executive officers adhere to a philosophy of investing in the company for the long-term.
With the passage of mandatory say-on-pay, companies have become even more attuned to the views of shareholder activists on these issues. ISS considers three categories relating to stock options guidelines and stock retention requirements in its Governance Risk Indicators (“GRId”) score. Up to three points can be added and five points can be subtracted from a company’s GRId score in each category. These points can make the difference between a positive or negative vote on say-on-pay, director elections and other proposals.
There is standard approach to ownership and retention guidelines. For boards that are designing or revising director and executive stock ownership programs, the myriad of possible design structures can be daunting. It is not always clear what is the most effective means to ensure that the company’s decision makers build and retain a substantial stake in the company at a level sufficient to properly align their interests with those shareholders.
With preparations for the 2012 proxy season underway at many companies, now is the time to begin thinking about your guidelines and retention requirements. In our panel, we will walk you through the decision process analyzing the important design features and let you know what other companies are doing now. Drilling down, we will explore the questions:
Should you adopt ownership guidelines, retention requirements or both? How will they interact with each other?
How deep in the ranks should these programs go?
What will be the consequences for noncompliance?
For Ownership Guidelines
What are the ownership requirements? A percentage of base salary/annual retainer? A fixed dollar amount? A fixed number of shares?
How high should you set the ownership requirements? Do they differ by position?
How much time should directors and executives be given to reach the guidelines?
Which holdings should count towards satisfying the guidelines–vested vs. unvested awards, stock options, 401(k) and deferred compensation holdings?
What happens if there is a change in the stock price leading to falling out of compliance with the guidelines?
For Retention Requirements
How many shares should be retained–50% or more of “net shares”, all equity awards?
How long should they last? Until ownership guidelines are satisfied? A specified number of years following vesting or exercise? Until retirement? Following retirement?
For answers to these questions and more, please Doreen Lilienfeld, John Cannon, and Kenneth Laverriere of Shearman & Sterling for their session, “A Sensible Approach to Stock Ownership Guidelines,” at the 19th Annual NASPP Conference.