US Multinat's Stock Option Grants Increasingly Customized to Geography

February 28, 2005 ( - US multinational companies are increasingly turning away from offering US-level stock option grants and instead tailoring these benefits to local levels.

According to a study by Towers Perrin, 39% of US multinationals polled have or will move to an approach that differentiates stock option grant size to geographical location. Only four years ago, this number was at 5%, according to a press release from the company. In that study, an additional 14% exercised discretion when determining non-US awards, however.

Looking closer at customization of awards, 42% of those companies polled established guidelines by tiers – a grouping of countries with similar markets – while 29% bundled their long-term incentives by region, Twenty-nine percent have separate guidelines for each country in which they have an interest, according to the news release.

The use of stock options also seems to be on a decline, according to the study. Stock option usage is expected to decline from 90% to 76%, while restricted stock is expected to rise from 71% to 74%. The use of performance share plans is also expected to rise from its current level of 35%, up to 43%.

“Companies find that tying awards closer to local market levels is attractive in terms of cost savings, which is especially important as we enter an option-expensing environment. This approach also conserves share usage, which has been a major concern of shareholders,” said James Matthews, principal and head of the compensation consulting practice for the Global Consulting Group of Towers Perrin’s HR Services business, in a press release. “Based on our findings and recent client experiences, we expect geographic differentiation of option grants to become median practice in the near future.”

The Towers Perrin study – the Global Long-Term Incentive Policies Survey – was conducted with 75 multinational companies with average annual sales of $16 billion.