We recently conducted a poll amongst a sample of US companies to ask where all those company equity schemes and long-term incentives are actually going. Who in the organization is getting equity and has anything changed from ‘normal’ practices? Granted, the findings are biased towards North America, but they are nevertheless very interesting and can be applied in the UK just as well.
In summary, companies are pushing their employee equity grants deeper into their organisations, and many are enhancing the equity grants for new hires. At a time when talent is in short supply and/or difficult to retain, companies are often increasing the amount that is granted annually. There is more restricted stock being granted, which is a reflection of volatile market conditions generally and a corporate tendency to want to hang onto the talent they have, rather than risk going out for someone new. This is very much the case here in the UK as well.
Given the reasonable tight talent market conditions, we had expected to see design changes like shorter performance or vesting periods, but these weren’t adopted. If such changes are to occur, they will be seen first amongst the disruptive tech-based firms and associated start-ups in insurance and finance.
Finally, we learned that only one-third of companies take unvested totals into account when granting additional equity. Although this isn’t something that is common practice, we expect to see more of it. We have made recommendations along these lines to several clients, recently. It can help you make better informed decisions and potentially set up decisions amongst the remuneration committee and discussions with management that lead to granting less when previous grants remain unvested. It may also provide a clearer look at just how much is to be left behind should an executive think about leaving and help better evaluate whether or not there are real flight risks in the management ranks.
