FW Cook recently released the 5th edition of its report on aggregate share-based compensation practices, which covers company-wide equity grant levels and practices at 300 U.S. based companies for the period 2014 – 2016. Key findings from our report are as follows:
- Compared to our prior 2014 study (covering 2011 – 2013), average aggregate company-wide equity grant levels remained relatively steady when measured by the cost of the awards granted as a percentage of company market capitalization (fair value transfer). The median company granted just under 1% of its market capitalization value in the form of equity awards each year in both studies (0.95% of market cap in the current study versus 0.90% of market cap in our previous 2014 study). Smaller-cap companies and growth industries that rely on human capital were higher than the average, while larger cap and investment capital intensive industries tended to be below the average.
- Potential shareholder dilution, which is a measure of the amount of equity awards outstanding at any given time that may dilute existing shareholders, has continued to decline over the last three years. Companies are granting a larger proportion of equity awards in the form of restricted and performance stock versus options, which use fewer shares for equivalent value and remain outstanding as overhang for far shorter periods of time.
- Companies are returning to shareholders more frequently for approval of new employee stock plan share authorizations, as investors and advisory service preferences have limited the number of shares companies can request in any given year. The current study found that 65% of companies returned to shareholders for an increase in the authorized share reserve over the last three years, which is an increase from 60% in our prior 2014 study.
- Employee stock purchase plans, which allow employees to purchase company stock at a discount to the market price, continue to be used at Technology companies but are less common in other industries. Our study found that 70% of Technology companies offer an employee stock purchase plan, while prevalence in other industries ranged from 18% (Energy) to 37% (Consumer Discretionary).
View the full 2017 Aggregate Share Based Compensation Report here.
Steven has extensive experience developing strategic and innovative compensation designs for clients in a wide range of industries, including technology, consumer services, life sciences, financial services, and utilities. He works with companies in all stages of development, including private, pre-IPO and mature public companies.