Options Losing Luster as LTI Tool

July 30, 2008 (PLANSPONSOR.com) - A new survey by an Alpharetta, Georgia research firm finds that stock options are gradually losing their status as the most common form of equity-based compensation.

A news release said the Culpepper Pay Practices & Policies Survey reveals that long-term incentive (LTI) plans for U.S. technology and life-science employers continue to move toward a mix of multiple types of incentives.

Culpepper found that only 59% of companies now offer options to employees, a development Culpepper chalks up to accounting rules requiring companies to expense options, backdating scandals, and declines in the stock market.

As the use of stock options continues to fall, the prevalence of other types of LTI plans is rising. Restricted stock (51%), performance-based LTIs (38%), and phantom stock (8%) are all gaining ground on stock options.

Only 17% of companies use stock options as their only long-term incentive, while 42% offer stock options with a mix of other types of LTI plans, the survey finds.

The most common criterion used to determine whether an employee is eligible for long-term incentives is job level, the survey finds. Individual employee performance, salary grade/level, and job title are also frequently used as factors to determine eligibility for LTI awards.

According to the poll, the most common event triggering LTI awards is at the time of hire. Seventy-two percent of companies offer long-term incentives to newly-hired employees.

The second most common LTI trigger is an annual grant process. Sixty-two percent of companies grant new LTI awards as part of an annual grant process.

More information about the survey is available  here.