Stock option bonanza for managers drying up

2006

Businesses are much less likely to shower their top managers with stock awards than they once were, and are now less inclined to tie equity to performance.

Research by consultancy Wilson Group has found that, contrary to common perceptions, businesses are decreasing stock awards to top talent.

The study of 38 companies ranging from 300 to 9,000 employees, primarily in New England, found nearly two thirds of public companies and 20 per cent of private ones were reducing their equity compensation awards this year.

The average cut in the level of stock-based compensation was about 30 per cent, with the increased costs of expensing stock options under federal regulation cited as one of the main reasons for the change.

Growing pressures by the board of directors to reduce shares to employees and managers and the perception that stock was not sufficiently valued by employees were other common factors.

Stock reductions were mostly impacting mid-level managers, professionals and lower-level staff within the organisations.

More than half the firms polled were reducing or eliminating awards to these groups of employees.

Just under a third were decreasing stock options to executives and these companies were typically converting stock options into restricted stock awards.

Despite their stated focus on performance, most companies were implementing changes to equity plans so that they did not encourage or reward results.

Companies were converting options into time-based restricted stock or restricted stock units that provided shares based on continued employment, rather than performance.

Additionally, the survey showed that 45 per cent of the companies polled were decreasing equity awards to their top performers and high-potential talent.

Companies were reducing equity awards to new hires, those in "hot jobs" and expatriates, the survey also found.

Reductions in equity compensation were not being offset by increases in other types of compensation to most employees, it also reported.

"While the study provides a benchmark of current equity practices among mid-sized firms, it also identifies an opportunity for strategically oriented companies to stake out a competitive advantage in this area," said Tom Wilson, president of Wilson Group.

"Firms that buck market trends and instead focus on aligning their equity compensation with strategic corporate goals will stand out in the marketplace.

"Additionally, there are other implications from the study's findings that companies need to consider: will reducing equity awards increase turnover and negatively impact efforts to recruit and retain key talent?" he continued.

"When it comes to equity compensation, companies should know what others are doing in the market and, at the same time, do their homework on what will work best for them. This will enable them to incorporate equity compensation into the overall strategic picture," Wilson concluded.