Tips and Tricks for Inducement Awards

The competition for AI talent is accelerating the use of available share pools, according to a fascinating LinkedIn post by Aon’s Laura Wanlass (h/t Comp Standards for the link). 

Why it matters: Higher dilution and burn rates can trigger negative proxy advisor recommendations and erode shareholder support. This is on top of the current volatility in stock prices, which directly affects the perceived and real value of equity awards for employees. For CHROs and compensation committees, the trade-off between retaining scarce AI talent and maintaining governance discipline has become a pressing issue.

What happened: Laura’s analysis found that the premium required to lure top AI engineers, data scientists, and machine learning specialists is pushing companies to exhaust their share pools. In response, some are being forced to:

• Rely more heavily on cash compensation—expensive in the short-term and less aligned with shareholder interests.
  
  
• Tap stock exchange inducement grant exceptions, which allow new hire equity grants outside the shareholder-approved plan if certain disclosure and governance requirements are met.

Inducement Award Exemption 101: New hire inducement awards can be granted outside the shareholder-approved plan if additional paperwork is filed and modifications are made to resolutions or award agreements. The company must disclose the award to the stock exchange and issue a press release, among other steps. 

The war for talent: According to Aon, the need to attract and retain specialized AI talent while staying out of proxy advisor crosshairs could have ripple effects across the workforce. Companies may need to rethink the design of their equity programs by:

• Scaling back broad-based equity grants, either by reducing award sizes or limiting participation.
  
  
• Enhancing employee stock purchase plans (ESPPs) to broaden ownership opportunities while conserving share pools.
  
  
• Adopting fixed share methodologies that provide clearer, more disciplined guardrails around dilution.