In today’s tight job market, it’s becoming increasingly challenging to attract and retain employees. Retention tops the list of reasons why organizations adjust their compensation strategy.1 Many employers are finding that a strong equity compensation plan can make the difference in their ability to recruit and keep key talent on board, motivated and aligned with performance goals.
Long-term incentive practices reflect a continuation of trends observed over the past several years, with nearly universal use of performance awards among the largest 250 companies.2
As you strategize about your equity compensation program, consider the following trends:
|1||Top employers are using incentive pay to drive performance. Companies who want to connect pay to performance are focusing on performance awards as part of their employee compensation strategy. Performance awards are the most popular type of incentive pay, with 94% of large companies granting performance shares, performance units or a combination of both in 2018.2|
|2||Companies are using a mix of long-term incentives. Companies continue to use a mix of grant types with 90% of large companies using two or more grant types.2 Large companies report using a portfolio of incentives that skews toward performance awards (55%) and might also include restricted stock (24%), with less emphasis on stock options/SARs (21%).2|
|3||Employee Stock Purchase Plans (ESPPs) help create an “ownership” culture. By allowing employees an opportunity to share in a company’s growth, an ESPP can motivate employees to focus on business goals and results. In addition to financial benefits, ESPPs can help increase a sense of collaboration and morale as employees across the company work together to achieve the same goals.3|
|4||Employee communications remain a top priority. While it seems obvious that better informed employees are more likely to participate and maximize their equity compensation benefits, employers recognize that there is an opportunity to improve employee communications and education.3 While email remains the dominant form of communication, plan administrators can explore other available resources including leveraging the communications support and materials offered by their plan provider.|
|5||Administration of equity compensation plans is becoming more demanding. Stock plan administration teams are under more pressure than ever, as smaller teams take on broad responsibilities.3 The role of a stock plan administrator is also becoming more complex, with the need to manage and coordinate diverse aspects of equity compensation such as taxation requirements for mobile employees, financial reporting and disclosures, and participant communications. To help teams manage time and resources, many turn to outsourcing. In fact, 52% of stock plan professionals report outsourcing either all or a portion of their stock plan administration.3|
To learn about how you can get help with the administration of your equity compensation plan, visit the Bank of America booth at NASPP, September 16–19 in New Orleans.
1 “2019 Compensation Best Practices Survey,” payscale.com, November/December 2018.
2 2018 Top 250 Report, FW Cook, November 2018. The 250 largest companies in the Standard & Poor’s (“S&P”) 500, limited to those granting long-term incentives, are selected annually based on market capitalization (i.e., share price multiplied by total common shares outstanding as of March 31, 2018, as reported by S&P’s Capital IQ).
3 Raising the Bar: Best Practices in Stock Plan Operations, Certent, 2017.