5 Urgent Equity Compensation Considerations

We are finally coming out of one of the oddest years in our lifetimes. The stock market has been wild and the impact on equity compensation programs has been varied. Many companies have contacted us with concerns about how their programs have weathered the past year. In response, we have once again rolled out our quick and effective Rapid Equity Diagnosis service. This service has limited availability and we want you to be able to take advantage of it.  

We believe it is essential to review your equity compensation plans considering market changes, volatility, and the ongoing hybrid and remote workforce. Given this past year's tumultuous landscape, we will help you determine what, if anything, you do to make things better going forward.

Here are 5 urgent equity compensation considers:

1. Is your equity still aligned with its intent (or vice versa)?

I have written about the criticality of “intent” in the past. Your equity plans should exist to do a few specific things. This first step is reevaluating that list of intentions and making sure there is still agreement from key stakeholders. The next step is reviewing whether your plan, given changes in the market, your company, etc. is still designed to properly deliver on those intentions. If your plan is meant to make your total reward value ultra-competitive, is that proving to be true? If your plan is meant to be a sweetener on top of very competitive cash compensation, are the values higher than they need be? Can you use fewer shares to accomplish your goals? Is it time to move from sizing grants based on numbers of shares to an approach that converts the current or potential future value into grant sizes? If you do only one thing for equity plans before year-end, this analysis is it.

2. Is your equity helping attract the right people?

How often do you need to adjust your equity offering to “get” the talent you want? This should be a rare event, not a common practice. When your equity is properly designed and scoped, it should help close the right candidates without modification. Misses in this area may be due to design or grant sizing, but often are a result of subpar communications or a lack of understanding by your talent acquisition professionals.

3. Is your equity retaining the right people?

Replacing valued people is far too expensive. Keeping bad people can be even more expensive. Turn-over must be evaluated in light of equity holdings. Are there patterns that indicate your program is weak? Equity is a long-term device that should align closely with your retention strategy. If your good people are leaving valuable equity on the table, or if your worst performers won’t leave voluntarily even after a couple of years of not receiving raises or bonuses, you may have an issue to address.

4. Is your equity motivating and engaging the right people?

A bifurcated market recovery that has driven the values of a smaller percentage of companies while decimating so many others, may not be the best indicator of plan success (positive or negative).

5. Do your employees properly value their equity?

Whether your stock price has soared or crashed this year, much of your equity still has value. Recent studies have shown that more than 85% of individuals do not understand their equity. It’s pretty easy to infer that if someone does not understand their equity, they cannot properly perceive its current or future value. This is low-hanging fruit. Communication programs do not require shareholder approval or huge budget requests. They mostly require time and effort. The value of better communications cannot be overestimated.

Addressing these five topics over the next few weeks will provide a foundation going forward. They will also provide the foundation for information to include in communications to shareholders as your company discusses its successes and needs in the future. Most importantly, you will be ensuring your very limited equity compensation budget is being used as efficiently as possible.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He has convinced himself he is a “Compensation Futurist” and works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.

About FutureSense 

FutureSense is a management consulting firm that provides integrated solutions to build and sustain human capital capacity. The firm can work with you by offering support and guidance to manage your workforce. To learn more about FutureSense, please visit FutureSense.com.