Global stock plan administration is more complex than ever. As more companies venture into foreign jurisdictions, more stock plan administrators become tasked with managing this new and ongoing growth relative to the company’s stock incentive programs. The NASPP recognizes the importance of identifying and understanding global stock plan practices and trends; that’s why, in partnership with PwC, we’re conducting the most comprehensive industry survey on this topic: the NASPP-PwC 2012 Global Equity Incentive Survey.
The last global survey was conducted in 2008 (in partnership with Deloitte), and even back then more than 60% of respondents had at least 2,500 employees based outside of the U.S. That’s a good sized population, and I’m betting those numbers have only increased since then, meaning that understanding global practices is even more important than ever. Back in 2008, non-qualified stock options ranked as the most popular form of stock compensation for employees outside of the U.S.; it will be interesting to see how much the use of Restricted Stock Units has risen in usage since that time.
In 2008, about half of responding companies indicated they make adjustments to the size of grants for their non-U.S. employees. 42% of companies had reported having recharge agreements in place with subsidiaries for stock plan arrangements. Have those trends continued to rise since then? This past year, our 2011 Domestic Stock Plan Administration Survey (in partnership with Deloitte), revealed some domestic trends that were somewhat surprising – for example, a dramatic rise in the use of stock ownership guidelines. Certainly we had expected this trend to continue to penetrate organizations, but the percentage of companies in 2011 (73%, vs. 54% from the prior survey in 2007) that had implemented such guidelines surpassed even our own informal projections. A lot can happen in four years, and we’re expecting to see some new trends on the global front, even some that may surprise us. You don’t want to miss out on the opportunity to have the full results available at your fingertips.
Time is running out to complete the survey (you must complete it by May 25th,) and, if you are an issuer, you must finish the entire survey to obtain the full results. To help you get started, I reiterate some tips to help submit your survey:
1. Don’t wait until the last minute. This is the industry’s most comprehensive survey; it includes loads of valuable information but it takes a while to complete. Start now, so you have plenty of time.
2. Don’t try to complete the whole survey in one sitting. The survey is divided into seven sections so that you can complete it in several sittings. If you complete just one section at a time, you’ll be done before you know it.
3. Get some help. Ask others at your company to complete the sections related to their responsibilities–everyone at your company will benefit from this data; there’s no reason for you to do all the work.
Incentives
There are benefits to completing the survey. First, as mentioned, you’ll have access to the full results (non-issuers who are NASPP members will also have access since they can’t complete the survey.) Second, you’ll receive a 10% discount on your registration to the 20th Annual NASPP Conference*, to be held this year from October 8-11 in New Orleans. This is a great opportunity (and added incentive) to attend the industry’s premier conference!
I hope I’ve given you enough reasons to click on over to the survey and start it today. I know I personally can’t wait to see the results.
-Jennifer
**The 10% discount applies to the rate in effect at the time you have both completed the survey and registered for the Conference.
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.
Across my desk this week came highlights from the NCEO’s recent survey on equity compensation in private companies. The NCEO says that the survey was intended to cover a wider range of closely held companies and to look at granting practices not just to executives, but to all employees. For this week’s blog, I share a snapshot of the survey results.
Demographics
201 companies and 32 service providers completed the survey. The large majority of participating companies (81%) have been in business for 5 years or more. Over half the respondents (56%) indicated their likely exit strategy would be a sale to another firm; only 10% are planning an IPO. A wide demographic was represented, with 42% of respondents representing biotech, software or other technology industries; 16% in professional services; 12% in manufacturing; and 30% in other industries. Seventy-two percent (72%) of the companies have outside venture or angel capital investors.
Plan Operations
Over half the participating companies use an outside administrative firm for administering their stock plan(s). The rest use a variety of approaches for stock plan administration. 47% of respondents use an outside appraiser to value the company’s shares. Twenty percent (20%) rely on their board to determine stock value, using the assistance of outside professionals.
Equity Distribution
Nearly all of the responding companies give at least some of their C-level employees equity; 77% of the companies give equity to all of their C-level employees. Most companies give C-level employees and senior management grants on hire, but only 44% of supervisory employees and 29% of hourly/non-supervisory employees receive grants. About half of the companies make occasional or periodic grants to eligible employees. C-level executives receive an average of 56% of the awards; other management receives an average of 19%, supervisory and technical 12% and hourly/non-supervisory 4%. Two-thirds of the companies utilize stock options, whereas restricted stock was far less common, at just 29%. Phantom stock, stock appreciation rights and restricted stock units are all used by less than 10% of the companies. The mean percentage of equity held by non-founders through awards is 15%.
More Information
The survey seems to capture feedback from a broad representation of closely held companies, with representation from both small and large companies, as well as demographics in multiple industries. Additional highlights of the survey can be found in our Private and Pre-IPO portal. The complete survey results are available for purchase from the NCEO. NASPP members who wish to purchase the survey are eligible for the NCEO member price ($150 vs. $250 for non-members). To take advantage of this pricing, enter the discount code SURVEY during checkout.
I look forward to seeing many of you at the 19th Annual NASPP Conference in San Francisco next week!
This week I look at a section of the NASPP’s 2011 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte) that came as a big surprise to me–the design and usage of stock ownership guidelines.
Trends in Stock Ownership Guidelines Maybe I haven’t been paying attention, but the significant increase in companies that have ownership guidelines was a big surprise for me. 73% of respondents in the 2011 survey report having ownership guidelines, up from only 54% of respondents in the 2007 Domestic Stock Plan Design and Administration Survey (also co-sponsored by Deloitte), a 35% increase. Back in 2007, we also asked how many respondents were considering implementing ownership guidelines in the next two years. Based on the responses to that question, I would have expected around 65% of respondents in the 2011 survey to have ownership guidelines, quite a bit less than 73%.
In case you are wondering, 25% of respondents to the 2011 survey that don’t currently have ownership guidelines said they are considering implementing them in the next three years. That would add around 35 companies to those that have guidelines, so I’d expect the percentage of respondents with ownership guidelines in 2014 (the next year the survey is planned for) to be close to 80%. All the cool kids are doing it, is your company one of them?
What Counts?
Everyone counts shares owned outright, whether purchased on the open market or through some type of compensatory or private arrangement. Of the respondents that offer the following types of arrangements, here’s the percentage that count them toward their guidelines:
70% count unvested restricted stock
60% count unvested phantom stock and RSUs
93% count vested phantom stock and deferred RSUs
Only 31% count unvested performance shares
72% of respondents indicated that they offer stock options but don’t count them toward the guidelines.
We asked about a bunch of other types of arrangements in the survey, but the ones I list above are the most interesting.
Who Counts?
Ownership guidelines are largely applied only to top executives–98% of respondents said that the guidelines apply to their CEO and CFO and 95% apply the guidelines to their other NEOs. Only 71% apply the guidelines to other senior executives. From there, application of the guidelines drops off sharply, with only 12% applying the guidelines to other management.
How and When to Count
Most, or 78%, of respondents base required ownership levels on a multiple or percent of compensation. 68% allow up to five years to meet the guidelines; another 13% percent require guidelines to be met in three years.
How Much to Count
For CEOs, required ownership levels are pretty high. 74% of respondents require the CEO to own stock equal in value to five or more times his/her compensation (49% of respondents require exactly five times compensation). That is perhaps reflective of how much CEOs get paid in stock. For the CFO and other NEOs, the requirement is a little lower, with 78% of respondents indicating that their requirement for these positions falls in the range of two to four times their compensation.
See You in San Francisco in Two Weeks! It’s hard to believe, but the 19th Annual NASPP Conference is just two weeks away! I hope to see all of my readers at the Conference, which is scheduled for November 1-4 in San Francisco. The last Conference in San Francisco sold out a month in advance–and that was without the reality of Dodd-Frank and mandatory Say-on-Pay hanging over our heads. With Conference registrations going strong–on track to reach nearly 2,000 attendees–this year’s event promises to be just as exciting; register today to ensure you don’t miss out (and make your hotel reservations, because the hotel is close to selling out).
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.
October 20 is a popular day for local NASPP chapter meetings; the Chicago, Los Angeles, Phoenix, and Twin Cities chapters are all meeting on this day (separately, not one big meeting). Make sure you attend your local meeting!
For today’s blog entry, I highlight results from the NASPP’s 2011 Stock Plan Design and Administration Survey (co-sponsored by Deloitte). If you missed our webcast highlighting the results, you can still catch the audio archive (and the transcript will be up in a couple of weeks). The full results will be published later this month; I’ll cover more highlights from the results in future blog entries.
The 2011 Domestic Stock Plan Administration Survey The last time the Domestic Stock Plan Administration Survey was conducted was in 2007, when it was part of the Domestic Design survey. This is the first time the Domestic Administration survey has been conducted and published independently.
Respondent Demographics
We received 603 responses, compared to 428 responses in 2007. High-tech companies still comprised the single largest industry in the survey, but dropped from 43% of the respondents in 2007 to only 34% of respondents in 2011. We picked up respondents in the “other” industries categories, which is a mish mash of industries that don’t fit into any of the other categories (one thing I like about writing a blog is that I can use words like “mish mash” that I can’t use in anything else I write). Respondents from the western region also dropped from 35% in 2007 to only 29% in 2011. We picked up respondents primarily in southeast and a little in the northeast. 37% of respondents are Fortune 500 companies (this was almost the same as in the 2007 survey).
Staffing and Outsourcing
A question I am asked a lot is what department stock plan administration is located in. 60% of respondents reported that HR/Comp & Benefits has primary responsibility for administering the company’s stock and option plans. This was up from 57% in 2007. I was surprised to see the number of companies that locate primary responsibility for stock plan administration in Treasury/Finance drop from 16% in 2007 to just 5% in the current survey. 9% of respondents task accounting with primary responsibility for stock plan administration, which did not change from the 2007 survey.
The percentage of companies that have no personnel dedicated solely to administering their stock and option plans increased from 31% in 2007 to 39% in 2011. At the same time, the number of companies outsourcing more than 75% of stock plan administration increased to 41%, up from 33% in 2007. Perhaps the increase in outsourcing contributed to the decline in staffing.
The Electronic Age
Companies continue to move to electronic processes. The percentage of respondents distributing grant agreements in paper format dropped to 33%, from 47% in 2007. 47% of respondents permit a digital signature on grant agreements for some or all employees, up from 34% in 2007.
Participant Communications
76% of respondents require employees to accept their grant agreements, which did not change significantly from 2007. Enforcement practices also did not change significantly, but an additional 4% (19%, up from 15% in 2007) of respondents cancel grants if they aren’t acknowledged within a specified period.
We are seeing more companies notify employees of expiring in-the-money options. Only 20% of respondents don’t provide this notice, down from 25% in 2007. And more companies are relying on a third-party to provide the notice (45% of respondents, up from 31% in 2007). I expect that this is the result of the brokers and other third-party administrators developing the functionality to provide these notices to employees and more companies getting comfortable with relying on the brokers to provide this notice.
See You in San Francisco! I hope to see all of my readers at the 19th Annual NASPP Conference, which is scheduled for November 1-4 in San Francisco. The last Conference in San Francisco sold out a month in advance–and that was without the reality of Dodd-Frank and mandatory Say-on-Pay hanging over our heads. With Conference registrations going strong–on track to reach nearly 2,000 attendees–this year’s event promises to be just as exciting; register today to ensure you don’t miss out (and make your hotel reservations, because the hotel is close to selling out).
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.
Attend your local NASPP chapter meetings in Florida, Houston, Ohio, San Diego, Silicon Valley, and Wisconsin. Robyn Shutak, the NASPP’s Education Director, will be at the San Diego meeting and I’ll be at the Silicon Valley meeting; we hope to see you there!
I recently completed an analysis of how ESPPs in the western United States compare to plans nationally and I thought my readers might be interested in how the results came out. I’ll be presenting the data during my panel “Pumping Up Purchase Plans: Re-Thinking the ESPP” at the Silicon Valley NASPP Chapter All-Day Conference, but I thought I’d give you a sneak peak.
ESPP Match-Up: The West vs. the Rest The data I’m comparing is from the NASPP’s 2007 Domestic Stock Plan Design and Administration Survey (co-sponsored by Deloitte). I asked Deloitte to run a special cut of the data that just includes companies in the west and I compared that to the national data we published. While the data are several years old, I don’t think ESPP design has changed significantly. We’ll know for sure later this year, when we publish the results of our 2010 Domestic Stock Plan Administration Survey. Hopefully you participated, so you’ll have access to the results.
First, a Note About the Participants
Of the companies in the western region:
71% are high-tech companies (vs. about 46% high-tech for the national data).
74% are companies in CA and 12% are companies in WA. The remaining companies are in CO, OR, ID, NV, WY.
21% are Fortune 500 companies.
Now, For the Results
93% of respondents in the western region that offer an ESPP, offer a Section 423 plan, compared to only 77% of respondents nationally. Because the incidence of Section 423 plans is so high in the west (and non-423 plans so few), the remaining data I present here are for Section 423 plans only.
Of those western region companies that offer a Section 423 ESPP:
89% offer a 15% discount (compared to 79% nationally)
81% base their purchase price on the lower of the beginning or ending FMV (compared to 66% nationally)
22% of western region companies have a 24-month offering period (compared to 19% nationally). Six-month offering periods are also more prevalent in the west (58% of western region respondents compared to 48% nationally).
So what offering length is used more frequently nationally than in the west? A whopping 18% of respondents in the national data have a three-month offering period, compared to only 9% of respondents in the western region. I had no idea three-month offerings were so popular nationally–I actually went back and checked the data again, just to make sure. Yep, 18%. That’s almost as many respondents as offer a 24-month offering at the national level (although it’s still less than half the number of national respondents that have a six-month offering). 12-month offerings are also slightly more popular in the national data than in the western region (11% nationally vs. 8% in the western region.)
Given that ESPPs are more frequently used and more generous in the west, does that translate into higher levels of participation? You bet it does! 48% of companies in the western region report participation levels of greater than 50%, whereas, in the national data, only 29% of companies report achieving this level of participation.
Learn More at the Silicon Valley NASPP Chapter All-Day Conference
If you are thinking that you’ve heard my whole presentation, so now you don’t need to come to the chapter conference next Thursday, June 23–think again! This data represents only three slides in my panel’s presentation, so we have lots more to “re-think” about ESPPs. (Spoiler alert: We still think ESPPs are a great idea.) There will be lots of other great panels throughout the day and you can’t beat the price of admission–register by this Friday, June 17, for the early-bird rate. I hope to see you there.
Only Ten Days Left for NASPP Conference Early-Bird Rate The 19th Annual NASPP Conference early-bird rate expires next Friday, June 24. This deadline will not be extended–register for the Conference today, so you don’t miss out.
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.
Register for 19th Annual NASPP Conference (November 1-4 in San Francisco). Don’t wait; the new early-bird rate is only available until June 24.
I recently attended a San Francisco NASPP chapter meeting that featured a presentation by Yana Plotkin of Towers Watson on trends in equity compensation. Yana included some data from the Towers Watson “2010/2011 Report on Long-Term Incentives, Policies and Practices.” Here are a few highlights:
Portfolio Approach
More companies are granting at least two types of awards–73% of respondents indicated this practice, an increase of 10% from 2009. Larger companies are more likely to utilize three types of awards than smaller companies.
Pay for Performance
Towers Watson is seeing a strong trend towards performance awards, which are now the second most common type of long-term incentive offered by survey respondents, ahead of stock options. Full value shares (RS/RSUs) were the most common type of LTI offered. In the NASPP’s 2010 Stock Plan Design and Administration Survey (co-sponsored by Deloitte), we also saw a strong trend towards performance awards, although we did not see them outpace the usage of stock options.
Full Value Awards
Towers Watson reports that full value awards have outpaced stock options for grants to employees at the manager/individual contributor level. In the NASPP survey, we also saw an increase in full value awards and even performance awards to employees at these levels, but many respondents were still granting stock options.
Award Sizes
For employees earning under $200,000, award sizes (as a percentage of salary) remained flat from 2009 to 2010 in the Towers Watson survey. But for employees at higher salary levels, award sizes increased, although not quite to 2008 levels.
Award Design
In terms of performance award design, Yana mentioned that they are seeing interest in awards with shorter performance periods, e.g., two years, and some sort of trailing service requirement after the performance goals have been met. I am a proponent of this design; for executives, it helps facilitate compliance with ownership requirements and clawback provisions and, for everyone, it can simplify tax withholding procedures.
Interestingly, Towers Watson reports that 35% of respondents to their survey measure performance relative to peers or a market index. For the NASPP survey, this was about the same (41% of respondents). Both surveys also agree on how commonly TSR is used as a performance metric (25% of respondents in the Towers Watson survey, 29% of respondents in the NASPP Survey). Yana indicated that Towers Watson is seeing more companies use TSR than in the past and that certainly aligns with the buzz I am hearing from compensation consultants, etc.
Performance Awards Are the Future
The biggest takeaway I got from Yana’s presentation is that the Say-on-Pay, the disclosures required under the Dodd-Frank Act, and shareholder expectations are making performance awards the hottest thing going today in terms of equity compensation. If you aren’t fully up to speed on them, don’t miss the pre-conference session, “Practical Guide to Performance-Based Awards,” to be held on November 1 in San Francisco, in advance of the NASPP Conference. Register by May 13 for the early-bird discount!
Online Fundamentals Starts in Two Weeks–Don’t Miss It! The NASPP’s acclaimed online program, “Stock Plan Fundamentals,” begins on April 14. This multi-webcast course covers the regulatory framework and administrative best practices that apply to stock compensation; it’s a great program for anyone new to the industry or anyone preparing for the CEP exam. Register today.
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.
Register for 19th Annual NASPP Conference (November 1-4 in San Francisco). Don’t wait; the early-bird rate is only available until May 13.
We have a lot of great new content on our NASPP site! I want to take the opportunity this week to let you know about some of the new features.
First, we have a new Quick Survey out on Global Stock Plans. Don’t forget to take a moment and complete this survey! It’s your opportunity to find out how other companies are dealing with some of the more difficult issues with global stock plans.
New Portals:
The NASPP portals provide a way to find consolidated information on the issues that matter most in stock plan management. Today, we have 26 portals listed; expect to see more in the future! You can access the NASPP portals from the list on the lower left side of the homepage, or through the drop-down menu on the navigation bar at the top of the site. The newest additions to our list of portals are:
Incentive Stock Options: Need a quick reference on the grant requirements for ISOs? Want to find the latest on Section 6039 Information Statements? The Incentive Stock Options portal not only has the comprehensive NASPP article on ISOs, it has final ISO regulations, articles, surveys, and sample documents.
Say on Pay: The Treasury, Congress, and the SEC have all proposed some form of say on pay requirements for companies. Our new Say on Pay Portal contains the proposed regulations along with memos and analysis on each. You can also find sample proxy statements from companies that have already taken steps to add a shareholder vote on compensation practices.
Surveys & Studies: I’m sure you all know that the NASPP publishes all Quick Survey, Stock Plan Design and Administration Survey, and Salary Survey results in the Surveys section of the Member Area drop-down menu on the navigation bar. But, did you know that we also have available comprehensive surveys and studies conducted by some of the best names in the industry? We’ve put them all together for you in our new Surveys & Studies portal. We’ve arranged this portal in a three-tab format so that you can find the study or survey you’re looking for by topic, year produced, or by the company publishing the information.
Updated Portals:
In addition to adding new portals, we’ve also gone back and reorganized some of our existing ones so that new developments and content are easier to find. Check out the updated 409A/Deferred Compensation portals and Executive Compensation Disclosures portal!
New content:
Our latest alerts on stock plan management practices, legislative and regulatory development, and global stock plans are always available on the NASPP homepage as well the corresponding portal. These are a few of the most recent additions:
There have been a lot of changes in global stock plan management. Don’t get left behind; sign up to have the latest alerts from specific countries send directly to your e-mail. In the past month alone, we’ve posted multiple alerts on Australia, the European Union, Portugal, Ireland, India and China. Don’t forget that you can search our global stock plan alert archives by country.
We’re not done, yet! You won’t want to miss out on what we have in store for next year. Renew your NASPP membership for 2010. If you aren’t an NASPP member, take advantage of our special offer and join today!