Mercer: Employers Differ in LTI Stock Option Replacement

September 15, 2006 ( - Many companies around the world that had used stock options in their long-term incentive (LTI) compensation programs are now relying on them much less, but there is a difference in how much less for firms in different countries.

That was a key finding of a new Mercer Human Resource Consulting survey of LTI trends in the US, Canada, Europe and Australia, according to a Mercer news release.

According to Mercer, use of both time-based and performance-based restricted stock is up a little bit at North American companies. That is true even though stock options still account for about half of senior executive grants.

Meanwhile, performance-based restricted stock now accounts for closer to 70% of grants in the UK and more than 80% in Australia.

The Mercer researchers say the cutback in stock options use comes as companies balance how much executives value them compared with their actual cost, given the increase in stock option expenses as companies now have to report them.

Not only that, according to Mercer, but boards of directors are now challenged to begin revamping corporate reporting practices to meet more extensive disclosure requirements in the US, Canada and Europe.

Whatever the reason for the change, Mercer said many American employers are factoring in how their LTI programs best fit in with their firm’s particular policies and procedures. Asserted Mercer: “Nearly two-thirds of US firms consider employee preferences or value perceptions when designing LTI plans, suggesting that companies are looking to develop an LTI approach that supports their unique corporate culture.”

Once benefit administrators settle on an LTI approach, Mercer said most offer it across their whole companies.

“Although previous findings suggested that some companies are allowing executives a choice of LTI alternatives, the most recent results indicate this year’s respondents are more concerned about treating their employees consistently and equitably,” Mercer wrote. “A one-size-fits-all approach can be easier to administer, which may very well be a driving factor given the pressure many HR teams are facing to scale back on staff or outsource the administration of their compensation programs.”

A summary of the report is here . Free registration is required.