The survey by Massachusetts-based consulting firm Wilson Group also revealed a disparity between what companies say their goals are in terms of equity compensation and their practices. For instance, companies claim they are committed to performance, but companies are converting options into time-based restricted stock or restricted stock units that provide shares based on continued employment, not performance. Forty five percent of companies are decreasing the use of performance incentives such as equity awards to top performers and high-potential talent, according to a press release on the survey findings.
More than 65% of public companies and 20% of private companies surveyed said they reduced their equity awards in 2006, the release said. These same firms are scaling back the stock options they offer by 30%, a move that is expected to have the greatest impact on mid-level managers, professionals and lower-level staff. However, less than a third of the companies surveyed said they plan to reduce the offering of stock options to their top executives.
According to the release, companies’ more conservative approach with respect to awarding stock options stems from the climbing costs of expensing stock options, the growing pressure by boards to reduce shares to employees and managers, and the perception that employees do not value company stock.
Additional findings of the study include:
- 43% of the companies are changing their Employee Stock Purchase Plans, typically by reducing the discount employees receive for purchasing company shares.
- 58% of companies will not be changing their variable cash compensation programs to address changes in equity pay, indicating that equity compensation programs are not being integrated into the strategic priorities of companies.
The survey also looked at the equity compensation practices across several industries and found that more than 80% of technology companies – a sector known for its use of equity compensation – have plans to cut back on equity compensation. Sixty-seven percent of consumer and manufacturing firms said they plan to do so, while 25% of financial services companies reported the same.
The survey included responses from 38 companies ranging from 300 to 9,000 employees.
To purchase the study “Changes in Equity Compensation 2006-2007, visit www.wilsongroup.com .