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Results of Center Quick Survey on Long-Term Equity Treatment

Published on: May 8, 2021

Topics: Corporate Governance, Executive Pay Legislation and Regulation, Executive Pay Plan Design

 Please find below the Center’s survey results on “Treatment of Long-term Equity.” This survey was requested by a Subscriber and explores which levels of employee receive equity and in which form, as well as how equity is treated in the event an employee leaves the company and stock ownership guidelines. 
 
The survey was conducted from April 21st to the 28th. In total, 108 Subscribers provided responses. A summary is outlined below and comprehensive results of the survey can be found here.
 
Long-term Equity Awards
  • Average CEO Award Makeup. Subscribers reported their use of equity vehicles are broadly in line with market trends.  
    • For CEOs, approximately 60% of the average total equity award is performance shares, 28% is RSUs, and 22% is stock options. 
    • As expected, the proportions shift going down the employment ladder. Vice Presidents have approximately 40% of equity in performance shares, 50% in RSUs, and 20% in stock options on average. 
  • Prevalence of Equity Vehicles.  
    • Nearly 98% of Subscribers grant performance shares to the CEO and 94% grant performance shares to VPs. 
    • Approximately 73% grant RSUs to CEOs, but they get more common moving down – 84% grant RSUs to VPs.
    • Stock options are the least popular but are still widely used – 62% grant them to the CEO and about 52% grant them to VPs.
Treatment Upon Termination
  • Companies were most likely to award all types of equity vehicles in full in the event of death or disability. 
  • Retirement or involuntary termination without cause (especially with a change in control) were a broad mix of prorated or forfeited (for both performance shares and RSUs, the two were nearly 50/50).  
    • Approximately 92% of respondents indicated that a combination of minimum age and years of service was required to be considered “retirement-eligible.”  
      • Anecdotal comments indicated it was common to see provisions such as “55 years of age and 10 years of service OR 65 years of age.”
  • Voluntary resignation and termination for cause almost exclusively resulted in forfeiture for all equity vehicles. 
  • One notable emerging trend was a requirement that shares granted within the last year were forfeited, but longer-term awards would be prorated. This avoids incenting executives to retire immediately after accepting a grant.
Grant Practices
  • Subscribers almost universally provided equity grants to employees at the VP level (99%) and were very likely to do so for employees at the director level (87%). Below the director level, approximately 13% of Subscribers grant equity. 
    • More than 93% determine equity eligibility by the employee’s job level. However, the comments indicated that some employees with critical skills may receive equity for retention purposes. 
    • At the lowest levels of equity eligibility, time-based RSUs are the most common vehicle (approximately 93%). Stock Options were granted by 17% of Subscribers, and PSUs by 16%. 
Stock Ownership
  • More than three quarters of Subscribers (77%) maintain stock ownership guidelines below the NEO level. The guidelines are most likely to be expressed in dollar value (86%). Comments indicated this was often determined as a multiple of salary. 
  • For stock ownership guidelines, the survey assumed that vested shares and shares held directly by the employee in question (in a variety of accounts) would count toward ownership thresholds. Subscribers also counted: 
    • Shares held indirectly in a trust or by a direct family member (75%)
    • Unvested time-based RSUs (72%)
    • Unvested shares in a 401(k) (41%)
  • Comments highlighted that Subscribers would also apply deferred shares toward the guidelines. For unvested shares, Subscribers indicated that a proportion of shares may be applied (most typically 50%).   
Thanks again to all Subscribers who took the time to respond to this survey. If you have any questions or would like to request a survey, please contact Andrew Maletz at [email protected].

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