UPDATE: Companies Will Be Reducing Equity Compensation Values to Executives and All Employees Just Over 50 Percent Also Report No Executive Salary Increases For 2009 - 4 Oct 2009 (orig from 11 Mar 2009)
In a survey released today by Buck Consultants, most companies report
that they will not be delivering the same equity values to their
executives in 2009 -- a consequence of decreasing stock prices
resulting from the current economic downturn.
The
survey, “Taking the Pulse of Equity Compensation,” examines measures
companies have recently taken or are planning to implement in 2009,
with respect to equity compensation programs and executive pay. The
survey includes responses from 73 U.S. organizations, with 90 percent
of the participants representing publicly traded companies.
“These
reductions in value at the time of the grant are occurring because it
is very difficult for most companies to increase the number of options
or shares granted to offset the decline in each share’s value,” said
Buck Consultants compensation principal Larry Schumer. “However, if a
company’s share price were to eventually rebound to levels experienced
prior to the economic downturn, the gains realized by the executives
may actually be greater than the grants given in previous years. This
is a complex issue, and companies need to carefully examine the value
of equity compensation and how to best deliver it.”
The survey
results also indicate that 52 percent of respondents said there was
potential for no increases in executive base salary in 2009.
Other significant findings include:
·
Forty-three percent of respondents expect to decrease participation in
stock grant programs; more than half of companies cite significant drop
in share price as their reason for this change.
· Thirty-one
percent of respondents expect to somewhat increase the number of
options or shares to those receiving grants in 2009, although very few
plan to fully restore last year’s value.
· Changes vary
significantly based on equity compensation practices. For those issuing
equity compensation based on number of shares, 60 percent anticipate no
change in awards. For those issuing equity compensation on a
dollar-value basis, only 30 percent expect no changes in awards.
·
Forty-five percent of respondents are considering a change in equity
compensation mix. Twenty-nine percent will increase their use of
shares, and decrease use of options -– likely due to negative employee
perceptions of options since a large majority of existing grants are
underwater. Sixteen percent of respondents will increase their use of
options, and decrease use of shares -– creating the possibility of
delivering more future value from the increased number of options
granted.
Buck Consultants, an ACS company, is a leader in
human resource and benefits consulting with more than 1,500
professionals worldwide. Founded in 1916 to advise clients in
establishing and funding some of the nation’s first public and private
retirement programs, Buck is an innovator in the areas of retirement
benefits, health and wellness programs, human capital management,
compensation, and employee communication. News and other information
about Buck Consultants are available at www.buckconsultants.com. Buck
is an independent subsidiary of Affiliated Computer Services, Inc.
ACS,
a global FORTUNE 500 company with approximately 70,000 people
supporting client operations reaching more than 100 countries, provides
business process outsourcing and information technology solutions to
world-class commercial and government clients. The company's Class A
common stock trades on the New York Stock Exchange under the symbol
"ACS." Learn more about ACS at http://www.acs-inc.com.
The
“Taking the Pulse of Equity Compensation” report is available to the
media by contacting Ed Gadowski at 201-902-2825. It is available to
other interested parties at no cost from Buck’s Global Survey
Resources, 500 Plaza Drive, Secaucus, NJ, 07096-1533. Telephone
1-800-887-0509. It also can be ordered online at www.bucksurveys.com.
Media Contacts:
Ed Gadowski
Media Relations
Buck Consultants, LLC
201-902-2825
edward.gadowski (at) buckconsultants.com
http://new.foundation-drilling-tools.cn/nami/278728
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Any comment I make will be suspect due to my recent affiliation with Buck, but these "headlines" really disturb me.
Based on 66 public companies' responses (90% of 73) - which represent less than 1% of public companies, with no detail about size or industry - we are supposed to believe that equity grant "values" will be 50% lower due to lower stock prices. This, after prices rebounded significantly, on average, since March. So those options granted in Q1-Q2 at low strike prices have a lower "value" - was there any analysis of option vs. share grants?
Further, 43% (31 companies) plan to reduce stock grant participation levels, and more than half (16 companies?) due to low stock prices. I'd love to have a conversation with those 16 companies about their logic.
I know that most of the members of this group have enough sophistication to discount the value of "survey data" like this, but the danger lies in less savvy news readers taking it at face value. This superficial and incomplete survey effort and resulting analysis, if accepted by a reader as a basis for decision-making, is a disservice to our profession.
You can be suspect about my motive in these comments but I hope you are equally suspect of this data and analysis.
All:
An astute ECE member pointed out two errors in the original posting of this article. I wanted to correct those as early as possible.
1) The original headline attached: "Equity COmpensation Values to be Reduced over 50% for 2009 - 4 Oct 2009" didn't accurately reflect the
headline of the press release or the content of the press release.
Equity values aren't down over 50%; the 50% figure goes with the
percentage of companies are not doing salary increases.
2) While the press release was recently picked up and redistributed, the ORIGINAL date of the press release was not indicated, so it says "4 Oct 2009"
when this was originally published back on March 11, 2009. The stock market bottom
was March 9, 2009, so the reality of equity pay values today is much
different.
This just goes to show that you have to be really careful when reading the "news". We do our best to find pertinent articles and post them accurately. If you ever see something that is suspect, please let me know immediately.
Thanks
Dan
Now for my response to Fred Whittlesey:
Many of you who have heard me speak on our industry know my own issue with survey data. There is no such thing as a perfect survey or even a perfect group of companies.
Personally, I believe that survey data should only be used to verify your decisions after you are pretty sure you have done everything else correctly. When you start with survey data, instead of your company's needs, you set yourself up to use compromised results.
Survey data is useful when you have determined your goals, determined the pay mix that would best work for your company, determined reasonable pay levels for your staff and designed at least a shell of the final decision matrix you will use to create your compensation program. Survey Data is also useful in determining more static compensation elements such as salary. The variability of many of the components of pay do not lend themselves to the slow, "point-in-time" nature of surveys. The fact that survey data from March 2009 may no longer be accurate, much less valid, only six months later shows exactly why we must all be very careful.
Dan