Equity Markets Slump Brings Stock Comp. Changes

March 11, 2009 (PLANSPONSOR.com) - A new Buck Consultants survey finds the slumping equity markets will mean most companies will be unable to deliver the same 2009 equity values as in previous years to their executives receiving stock compensation.

The survey results also indicate that 52% of respondents said there was potential for no increases in 2009 executive base salary, according to a news release.

Other findings include:

  • Forty-three percent of respondents expect to decrease participation in stock grant programs; more than half of companies cite significant drop in share price as their reason.
  • Thirty-one percent of respondents expect to somewhat increase the number of options or shares to those receiving grants in 2009, although very few plan to fully restore last year’s value.
  • Changes vary significantly based on equity compensation practices. For those issuing equity compensation based on number of shares, 60% anticipate no change. Of those issuing equity compensation on a dollar-value basis, 30% expect no changes.
  • Forty-five percent of respondents are considering a change in equity compensation mix. Twenty-nine percent will increase their use of shares and decrease use of options. Sixteen percent of respondents will increase their use of options and decrease use of shares.

“These reductions in value at the time of the grant are occurring because it is very difficult for most companies to increase the number of options or shares granted to offset the decline in each share’s value,” said Buck Consultants compensation principal Larry Schumer, in the news release. “However, if a company’s share price were to eventually rebound to levels experienced prior to the economic downturn, the gains realized by the executives may actually be greater than the grants given in previous years. This is a complex issue, and companies need to carefully examine the value of equity compensation and how to best deliver it.”

The survey includes responses from 73 U.S. organizations, with 90% of the participants representing publicly-traded companies.