LTI Programs Growing More Common Around the World

August 24, 2005 ( - Using equity-based compensation as a long-term incentive program (LTI) is very much not just an American phenomenon, according to a new survey.

A news release from Towers Perrin HR Services said its 2005 Equity Incentives Around the World Survey found that large employers in nearly every industrialized nation have increased the use of equity incentives as integral parts of compensation.

In fact, according to the survey, LTI programs are now in place at 80% or more of companies in Belgium, Germany, Italy and Switzerland, representing an extension of the findings from the previous study conducted in 2001. In Asian nations, the use of equity LTIs is more divided. Stock options remain a minority practice in China, Japan and South Korea; however, their use is widespread in Hong Kong and Singapore.

“Historically, stock options and other forms of equity awards have been nearly universal components of incentive plans for companies based in the world’s major developed nations,” said James Matthews, principal in Towers Perrin’s Compensation practice, in the announcement. “Now the world’s emerging markets are playing ‘catch up,’ granting more equity to executives.”

Non-option types of equity incentives have gained prevalence over the past year or so worldwide, in the form of restricted stock and performance shares, Towers Perrin asserted. The introduction of mandatory expensing of stock options by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) has driven companies to explore alternative incentive programs.

“In the recent past, many multinationals simply exported their home country approach around the world. But now we’re seeing much more emphasis on understanding the local market practices and regulations, and this is impacting both the design of plans and the size of awards,” said Matthews. “For example, looking forward, we anticipate that the world’s leading companies will develop geographically specific grant guidelines. Varying the level and mix of awards based on location, while preserving a consistent companywide philosophy, will be crucial.”

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