A PricewaterhouseCoopers’ news release said that companies moving towards a liquidity event – such as an initial public offering or corporate acquisition – tend toward equity-based incentives including stock options. Often, all of the firm’s employees are incentive eligible but, most often, shares can’t be sold until the liquidity event takes place.
According to the company, 80% of CEOs of fast-growth companies see the current executive talent market as competitive. A quarter of those (24%) label it highly competitive. Some 91% of companies operating in that environment include incentive-based compensation, nearly all of which includes a cash portion.
“Of necessity, private companies have become increasingly creative with incentive-based compensation,” said Rich Calzaretta, leader of PricewaterhouseCoopers’ US Private Company Services practice, in the news release. “Cash-based incentives are a staple, with equity-based incentives most often added if a liquidity event is planned.”
Looking ahead, 66% of companies expect to stay private while one in five is managing toward a liquidity event. The remainder are not sure or did not report. Virtually all those envisioning a liquidity event (86%) expect it will occur within the next five years. Some 56% of those moving toward a liquidity event offer equity-based incentives; 92% of these offer options. Some 46% of those offering equity-based incentives restrict them to senior management while 54% offer eligibility to their entire employee population.
But, 78% of those offering options and other equity-based incentives say these are not readily redeemable – employees must wait for the liquidity event to occur, in order to cash out. Companies expecting to stay private have a different profile. Only 17 % offer equity incentives, but a majority of these (63 %) do redeem equity, usually at termination or retirement:
Cash-based incentives, offered by 89% of all surveyed companies, may include awards for long-term performance, bonuses, commissions, and other components. For the most part, use of these and other plan elements is comparable for companies planning to stay private and those moving toward liquidity, with one exception: share value-based stock appreciation rights are offered by 23% of those managing toward a liquidity event, but by only 7% of those intending to remain private.
Among the 60% of fast-growth companies with family members in the business, three-quarters (77%) report compensation arrangements to be the same for family- and non-family members.
More information is at www.barometersurveys.com .