Surveys - Stock Awards and Long-term Incentives (LTIs)
2020.10 Frederic W. Cook's Top 250 LTIP Report. This 21-page report is rich with data about grant-making practices relating to stock options, restricted shares, and performance award. One stand-out data point indicates the extent to which better governance practices have shaped awards away from stock options toward performance awards.
2019.11 Frederic W. Cook's Top 250 LTIP Report. This 24-page report ... see commentary above.
2019.06.19 ClearBridge 100 Report about Annual Incentive and Long-term Incentive Plans. See this 23-page report for survey data about plan design terms such as the following quoted from the report:
- Long-Term Incentive Plans Vehicles/Mix:
- 86% of ClearBridge 100 companies use multiple LTI vehicles, with the use of two vehicles being the most prevalent practice (54%).
- Nearly all companies use some form of performance-vested LTI (94%). ...
- The use of time-vested restricted stock/units (64% in 2018) increased over the last three years while the use of time-vested stock options/SARs (51% in 2018) declined.
- Time-Vested Award Design
- Three-year vesting periods are most prevalent for time-vested awards (66% for time-vested restricted stock/units and 57% for time-vested stock options/SARs).
- Most time-vested stock options/SARs (88%) and time-vested restricted stock/units (80%) vest ratably over the vesting period.
- Performance-Vested Award Design
- The use of three-year performance periods continues to be the prevailing market practice (89%).
- The use of a stock-based measure, like total shareholder return (“TSR”), continued to be the most prevalent measure in 2018 (64% of companies), followed by earnings (45%).
- Most companies set their maximum LTI payout opportunity at 200% of target (64%).
2019.04.11 Equilar on LTIP Awards and Measures. See this Harvard Law Blog for significant data drawn from Equilar's recent report. Here are a few notable findings:
- "Three-Year Performance Periods Reign Supreme" . . . Approximately 87% of performance awards granted to named executive officers in 2017 had three-year performance periods."
- "By far, the most prevalent performance thresholds for LTIP awards granted to CEOs were between 90% to 100% of the total award, while the most common maximums for those same awards fell between 100% and 110% of the target."
- "the number of Equilar 100 companies using relative TSR [total shareholder return] in CEO LTIP awards mirrored that of the Equilar 500, with half of the companies doing so."
- "Approximately 54.7% of Equilar 500 companies included TSR as a metric in their CEO’s long-term incentive plan in 2017, while the second-most commonly used metric, return on capital (ROC), saw usage from 37.1% of companies."
- "While a majority of the most frequently used metrics remained largely stagnant in usage from 2013 to 2017, the percentage of companies implementing relative TSR targets rose by 9.8 percentage points for CEO LTIP awards, 8.8 percentage points for CFO LTIP awards, and 9.6 percentage points for other officers’ awards."
2017.08.25 FW Cook Top 250 Report (Equity Awards). The 45th edition of this comprehensive report includes finding such as the following:
- "Companies continue to employ a portfolio strategy for long-term incentives to balance the advantages and drawbacks of each vehicle type, with nearly 90% of the Top 250 companies using two or more grant types."
- For CEOs, the average mix of awards is 56% performance, 23% stock option, and 21% restricted stock.
- For all award types, 90% of vesting schedules cover a 3 or 4 year period (pro rata).
- For performance awards, the two most common measures are (1) total shareholder return relative to a peer group, and (2) absolute profit, without regard to peer group.
2016.12 Arthur J Gallagher's Comprehensive LTI and STI Study. Some sense of the comprehensive data available in this report appear in the following excerpts re LTI (equity compensation plans):
- Performance-based awards continue to increase in both prevalence and value with the opposite occurring for stock options/SARs. Performance-based awards are used by 95% of the top 200 companies and represent 59% of the average total grant-date value provided; on the other hand, stock options/SARs, which are used by 61% of companies, account for 23% of the average total LTI value.
- Maximum payouts were most often capped at 200% of target (65%), followed by 21% of companies capping the payout at 150%. The most common threshold payout is set at 50% of target (41% prevalence), followed by 0% which is used by 22% of companies.
2016.08 PwC's 2016 Stock Compensation Survey. See this 35 page report, which includes numerous insightful findings, such as these that remained about the same for 2014 and 2015:
- Tech companies have been granting an equal mix (50/50) of restricted stock and stock options, while large companies rely more heavily on restricted stock (78%) than stock options (22%).
- From an expense perspective, stock compensation cost tech companies about 11% of pre-tax earnings, but only 3.5% of pre-tax earnings for large companies.
- The average vesting schedules for stock awards is between 3 to 4 years.
- "Use of performance metrics [in addition to service-based vesting] is more prevalent in the Large Companies (75% of Large Company group vs. 51% of the High Tech group have some form of performance or market condition attached to their restricted stock awards), and is more common with restricted stock awards than with stock options."
2016.May.04 "Trends and Developments in Executive Compensation" - This Meridian Partners Report provides data focused on the preparation process (such as steps taken in anticipation of ISS review), and includes findings such as the following (drawn from 143 public companies):
- 90% of companies use two or more vehicles - performance awards, stock options, and restricted stock or units. The most common combination of awards involved 60% performance awards and 40% restricted stock. Of the three common forms of equity awards, their overall usage was 55% performance awards; 29% restricted stock; and 16% stock options. 80% use three-year periods for performance-based vesting.
- For long-term performance measures, nearly 60% utilize total shareholder return, followed by earnings per share (22%) and operating income (EBITDA) and Return on Invested Capital (16% each).
2015.Dec. Long-Term Incentive Grant Practices for Executives. This Harvard Law Blog relates to a 2015 Top 250 Report, by Frederic W. Cook, which provides detailed data about the use of stock options, restricted stock, and performance awards by the top 250 companies in the S&P500. For instance, the report's findings include the following (with italics here showing text quoted from the report):
- Most companies (84%) continue to employ a portfolio strategy, combining multiple grant types as a means to balance objectives of rewarding stock price appreciation, promoting longer-term financial or strategic performance, and retaining executives. Less than one in six companies rely on a single grant type, and of these companies, 59% grant performance awards, 18% grant stock options, and 23% grant restricted stock.
- On average, performance awards comprise 52% of a Top 250 CEO’s total long-term incentive value. Stock options/SARs represent 27% and restricted stock makes up the remaining 21%.
- For all awards, over 80% of the vesting schedules cover three or four years.
2014.Dec.10 Study of Top 200 Public Companies
See the Gallagher Study of 2013 Short- and Long-Term Incentive Design Criterion among Top 200 S&P 500 Companies.
2014.Oct.31 Performance Awards - Relative Total Shareholder Return Surges
This FW Cook report focuses on how the top 250 U.S. companies structure their performance awards. Since 2010, the use of relative total shareholder return (TSR) has increased from 29% of awards to 49%, with 93% of performance periods being for three (3) years.
2014.Sept Stock Compensation Study from PwC
See this PwC Stock Compensation 2014 Assumption and Disclosure Study.
2014.Feb Private Company Equity and Phantom Awards - for detailed results, see pages 18 and following of this world at work survey.
2013.Dec. LTI Survey of Top 100 Companies re Performance Award Design. This ClearBridge survey of 2011-12 proxy statements provides data such as the following:
- * 85% of companies provide performance-based awards (with 75% of them using performance shares), and
- * 50% of performance awards use earnings or total shareholder return as performance measures.
2013.May LTI and Equity Awards: Survey Data re what is being awards, performance measures, vesting, etc. - see pages 19-25 of this Meridian Partners Report for excellent detailed data.
2012.Dec Performance Awards Work, per Survey of Fidelity Stock Plan Clients. Here are quotations of research highlights from a survey covering 2006-2011 for 89 companies:
- Performance award payouts are aligned with company performance: Approximately 70% of awards reflected this alignment with TSR or EPS, regardless of the actual performance criteria used to determine award payouts.
- No single measure stands out as yielding higher payouts or driving better results.
- Relative metrics versus absolute metrics yield little difference in award payout.
- Three-year performance awards have a statistically stronger correlation between pay and performance
- than performance awards with shorter performance measurement periods.
2012.Oct Survey of Top 250 Companies - Frederic W. Cook Report.
2012.Jan Survey Data. Below are links to surveys that generally reflect the following observations:
For public companies, 10% of equity continues to be the norm for stock-based plans.
For plans funded by private equity, less than 10% for equity tends to be more common due to more judicious use and employer leverage, with 5 to 7.5% being closer to the norm in my experience.
For start-ups, 15% to 25% of equity tends to be common, with the increased percentage this is consistent with private companies reserving more for equity awards because more use of stock options and cash conservation.
- NCEO PowerPoint re Private Co. Survey Results (Jan. 2012).
- Towers Watson Survey (Jan. 2012): includes industry-specific info, and generally notes --
- annual “run rates” re stock awards at 1% of outstanding shares or less – consistent with most stock plans having a 10 year term and covering 10% of outstanding shares.
- “On average, 15% of equity is held by non-founder employees”;
- "Full-value awards now comprise 47% of the number of shares granted and 75% of the grant-date fair value of all equity awards at the typical company, compared to 29% of the shares granted and 57% of the value five years ago."
- "While most companies (75%) continue to use a mix of vehicles in their program, the percentage of companies granting only full-value awards has increased from 16% to 19%, while the percentage of companies granting only appreciation awards decreased from 5% to 3% in 2010. The percentage of companies not granting equity awards remained constant at 3%."
- World at Work Survey (Jan 2012) - states that: “The private companies surveyed report modest equity overhang or pools for current and future grants. Seven out of 10 of the respondents with LTI plans in place report equity pools of about 10% or less.”
- 2011 Survey of Severance Practices. See this Arthur J. Gallagher Study of stock award practices.
- 2011 ALSO: NCEO Private Co. Data re Options vs Restricted Stock (Dec. 2011): article presents data re award practices by type of award and person, but $150 for survey.