As U.S. companies continue a decade-long shift away from granting employees stock options toward issuing more full-value (time- or performance-lapsing) shares as part of their long-term incentive (LTI) programs, the number of shares required to deliver the same value to LTI plan participants has declined. At the same time, shareholders have increasingly monitored stock incentive usage at the companies in their portfolios and have taken action in limited cases where share usage exceeds norms via negative votes on LTI plan proposals. As a result, stock usage is at its lowest point in years as companies face continuing pressure to operate their LTI plans within market norms.
In our latest analysis of equity use at U.S. companies, Willis Towers Watson’s Executive Compensation Resources team examined the disclosed equity compensation practices and trends from a subset of the S&P 1500. Our S&P 1500 sample is made up of the subindexes based on market capitalization: the large-cap S&P 500, mid-cap S&P 400 and the small-cap S&P 600. The study is based on our analysis of 500 companies selected to provide a proportional representation of the various subindexes and industries. The industries are consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials and utilities.
Key findings from the study include:
- A continuing trend of reduced run rate overall, although there is some growth among companies with the highest run rates
- A continuing increase in the fair value of LTI awards (e.g., the typical S&P 1500 company awarded $23.1 million in LTIs in 2015, up from a median of $17.5 million two years ago), even as share usage has declined
- Growing use of full-value (time- or performance-lapsing) shares, while the use of stock options continues to wane.
For details of our latest analysis, read our new Executive Compensation Bulletin by clicking on DOWNLOAD PDF above or below.
Amelia Serrano is a senior executive compensation analyst in Willis Towers Watson’s Executive Compensation Resources team, based in the Houston office. Email firstname.lastname@example.org or email@example.com.