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!
For today’s blog entry, I have the results of the NASPP’s Quick Survey on ASC 718, presented in a nifty interactive infographic (place your cursor over a section of each chart to see its label). (Click here if you don’t see the graphic below.)
BTW—if you are one of the 83% of respondents that haven’t yet figured out the impact of the tax accounting changes to your earnings per share, see my blog entry “Run Your Own Numbers,” for easy-peasy instructions on how most companies can figure this out in just 5 minutes. It’s a great opportunity to demonstrate your knowledge and value to your accounting/finance team.
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.)
This week I admit to having holiday brain already. Somehow it’s just hard to think about serious topics when my mind is wandering to the mechanics and food of Thanksgiving Day. So keeping with the lighter side, I’m going to brainstorm a list of things you can do when your own mind goes into distraction mode.
1. Read the highlights of the 2013 Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP) – hot off the press. Who doesn’t love good survey data to back up practices or shed light on new trends? Take a few minutes to learn about what’s hot and what’s not.
3. Be social. We can’t all park ourselves around the same physical water cooler, but we can meet virtually, via social media. The NASPP continues to evolve socially – with very active LinkedIn, Twitter and Facebook pages. We’ve got lots of content out there, but we also capture the “fun” of being in this industry – our latest posts feature great photos from some recent chapter events. If you find yourself daydreaming, take a minute to follow us or Like us online. This will ensure you don’t miss any hot off the press updates, either.
4. Take some “me” time. Has it been a while since you took stock of yourself, or invested time in building your brand and furthering your career? I recently came across a quote by Warren Buffet that says “Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen. But if you’ve got talent yourself, and you’ve maximized your talent, you’ve got a tremendous asset that can return ten-fold.” If it’s been a short or long while since you’ve put some of your time into your own growth and development, it’s time to put “you” back on the list. Give yourself the gift of personal growth this holiday season. A great start would be to explore our NASPP Career Center. It has its own blog, Career Corner, guest authored by Andrea Best of Stock & Option Solutions. It’s a great way to spend some quality down time minutes.
5. Keeping with the theme of #4 above (“me” time), consider updating your LinkedIn profile. Even if you aren’t looking for a job, it’s becoming “standard” practice to put lots of detail in your profile and post regular updates.
Hopefully you’ve gained a couple of ideas on how to spend your holiday distraction time. I wish everyone a very happy Thanksgiving holiday.
For our Meet the Speaker interview this week, we feature…me…discussing the session I’m co-facilitating with Tara Tays of Deloitte that will highlight the results of the 2013 NASPP and Deloitte Domestic Stock Plan Design Survey. Yes, that’s right–I interviewed myself!
NASPP: Last week the Wall Street Journal ran an article predicting the demise of stock options. Based on the data in the 2013 survey, is this true?
Barbara: I’m not sure I would go quite that far, but we did see a marked decline in the prevalence of stock option plans this year. Only 68% of respondents report having a stock option plan, down from 92% in 2010. But that’s still well over half of the respondents that have stock option plans, so I think that option plans still have their place and will continue to be utilized by some companies, particularly start-ups and high-growth companies.
NASPP: If stock options are declining in use, what is taking their place?
Barbara: It’s pretty clearly full value awards, both time-based and performance-based. Prevalence of time-based award plans is at 91% of respondents, up from 89% in 2010. Performance plans are where we’ve seen the most growth, with 87% of respondents reporting a performance plan, up from 71% in 2010.
These numbers are even more dramatic when we look at the results from ten years ago: at that time only 52% of respondents reported a time-based full value award plan and only 30% reported a performance plan, but 99% reported having a stock option plan. Over the last decade, the landscape for stock compensation has completely shifted.
NASPP: We been hearing for years now that the future is in TSR awards. Where do these come out in the survey?
Barbara: I think the predictions about TSR awards might be bearing out. In our 2010 survey, EPS and TSR were tied as the two most popular performance targets but with this year’s survey, TSR has really moved into the lead. 43% of respondents report that TSR is a target for their performance awards; the only other targets that were remotely close to that in terms of prevalence were EPS (27% of respondents) and revenue (21% of respondents). It’s clear that there’s been an increase in usage of TSR awards over the past three years. There are a lot of very compelling reasons to choose relative TSR as a target and I expect that we’ll see this trend continue.
NASPP: What are three things people don’t know about you:
One of my high school math teachers, Mr. Cieply, told me I was “wasting my brain” because I didn’t take calculus. In retrospect, however, I have to say that Mr. Cieply vastly overestimated my aptitude for math.
I am a big fan of Rex Stout’s Nero Wolfe novels. I’ve read the entire 46-book series multiple times. As a leading man, Archie Goodwin beats the pants off both Edward Cullen and that guy from the Shades of Gray books.
I really just don’t like pork belly. I will be very glad when the foodies move on to another trend, hopefully one that doesn’t involve animal fat. Ew.
Across my desk this week came the latest report from Equilar, an executive compensation data firm, on equity trends. In their 2013 Equity Trends Report, key findings included upticks in the use of restricted stock and performance shares, and a slight downturn in the use of stock options. I’ll highlight a few of the observations in today’s blog.
Trending Now
The Equilar report analyzed the equity practices in S&P 1500 companies that are publicly traded and have at least 6 years of disclosures (resulting in a pool of 1,327 companies). Some of the notable findings include:
Restricted stock awards are at an all-time high, with 92.8% of the companies issuing restricted stock in 2012 (compared to about 80% back in 2007). I couldn’t find any breakdown in the report between the use of RSAs vs. RSUs – so for purposes of this analysis the term “restricted stock” appears to encompass both types.
Stock options continue to decline in use. Equilar reports that over the past 6 reporting years (2007-2012), the number of companies reporting that they grant stock options has decreased to 65.2% from 78.5%. The size of the median stock option grant has also decreased for three straight years in a row, continuing a trend we’ve seen over the last decade (only varied by a blip in 2008 and 2009 when companies increased grants to compensate for market conditions). Although there has been a continued downward trend in this area, I personally believe that stock options will continue be mainstream – I don’t see them just riding off into the sunset – at least not in the near term.
Performance shares keep rising in popularity. This has been an ongoing trend, so no big surprise here. The report indicates that 61.8% of the S&P 1500 CEOs received performance grants in 2012, compared to 55.8% in 2011. I expect we’ll continue to see upward mobility in those numbers, year over year.
The Equilar report does cover additional topics of interest, such as trends in dilution and volatility rates. You can access the full report on Equilar’s website. This report affirms some of the trends we’ve observed, and we expect these trends will continue to gain upward (or downward, in the case of some of the stock option trends) momentum in the coming months and years.
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.
Normally I like to highlight benefits that we offer to NASPP members, but today I’m writing about something we don’t have: data on grant sizes. It’s something I get asked about occasionally, just frequently enough that I think it would be nice to have blog entry I could point to that explains why we don’t have this data.
Why Doesn’t the NASPP Offer Benchmarking Data on Grant Sizes
We don’t offer this data because you can’t look at award sizes in a vacuum. You need to look at awards as part of the company’s overall compensation package and include cash-based compensation and other benefit programs in your analysis. Companies that pay heavily in cash are likely to use less stock compensation and vice versa. Thus, you don’t want to set award sizes based on peer data without also knowing how the cash compensation (including salary, commissions, bonuses, and other long-term incentives) paid by your peers compares to your own. Doing so could result in severely over-compensating or under-compensating employees.
The same consideration also should be given to other benefit programs. For example, I recently spoke with a company that was implementing a stock award program to replace the company match in their 401(k) program. Because their stock awards are designed to make up for a lack in their 401(k) benefit, I would expect them to grant larger awards to more employees than a similarly situated company that has a more robust 401(k).
Stock compensation should be a component of your overall compensation package–the goal is to figure out what your overall compensation package should be, including cash, stock, and other benefits, and then figure out how much of that overall package you want to be in stock.
While we, here at the NASPP, are the leading experts on stock compensation, I admit that we don’t know beans about cash-based compensation and other benefit programs. Because we don’t have the expertise to properly evaluate other compensation data, we have decided that it would be inappropriate–perhaps even irresponsible–for us to publish data on grant sizes.
Ultimately, determining guidelines for grant sizes isn’t a do-it-yourself project. It’s not quite as simple as just looking at some survey data. There are numerous questions as to how grants, particularly stock options, should be valued for compensation purposes (we’ll have a great session on this at this year’s NASPP Conference–stay tuned for more information when we announce the program later this month). The number of shares you have available in your plan and how amenable your shareholders will be to additional share allocations (which will in part depend on your shareholder demographics, as well as your overhang and burn rate) are additional factors to consider when deciding on grant sizes. You would not want to set guidelines that cause you to run out of shares before you’ll be able to get your shareholders to approve an additional allocation of shares to the plan. In addition, any survey data lags behind the market, sometimes considerably. This is an inherent part of the survey process; it takes time to collect the results, analyze, and publish them so that by the time the results are published, the market has already changed.
Once awards are granted, mistakes as to size aren’t easy to fix. I encourage companies to work with a compensation consultant who can provide the appropriate benchmarking from peer companies with similar compensation strategies and benefits and can suggest adjustments based on differences in your strategies and other benefits. In addition, a consultant can help you assess the value of your overall compensation package as it compares to your peers, determine the appropriate way to value your own options and awards, and provide input into how the market has shifted since the survey results you are looking at were published. Grant sizes are one of the single most important decisions you are going to make about your stock program; it’s worth the investment.
Correction In last week’s blog entry (“News on the Proxy Advisors“), I got the name of ISS’s parent company wrong. Four times (at least I was consistent). It should have been MSCI (not MCSI). But don’t bother going back to look at it now to find the mistakes–I’ve fixed 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 we keep an ongoing “to do” list for you here in our blog.
Register for the 20th Annual NASPP Conference in New Orleans. Don’t wait, the early-bird rate is only available until May 31.
Register for the NASPP’s newly updated online Stock Plan Fundamentals program–it’s not too late to get into the course; all webcasts have been archived for you to listen to at your convenience.