Companies monitor stock plan usage and reserve pools to ensure equity incentive plans support business objectives. Acute disruptions in the global economy, such as the COVID-19 pandemic, make understanding those issues even more salient when employee reward and retention are key differentiators in success. The Global Executive Compensation Analysis Team (GECAT) reviewed the S&P 500 overhang, run rates and long-term incentive (LTI) fair values for fiscal years 2017 to 2020, as reported in 2021, as well as 2021 midyear filers to assess recent equity compensation program trends.
Although median run rates experienced a 5% increase in 2019 over 2018 figures, they continued an overall downward trend since 2017 and decreased 2.3% in 2020 to 0.62% of average CSO. Median run rates in 2020 represent a 10% decrease from the highest run rate in the last four years of 0.69% of average CSO. The utilities sector, which has the lowest run rate, saw the greatest decrease of 22% from a 0.21% run rate in 2017 to 0.16% in 2020. The communication services and real estate sectors were the only sectors with an increase in 2020 over 2017. The highest increase of 18.9% was seen in the communication services sector, which saw its run rate increase from 0.98% to 1.17%, surpassing the prior period’s highest run rate of 1.0% held by the information technology sector.
Companies that require additional shares to fund their stock grant practices need to request shareholder approval to allocate additional shares to their equity plans. Some companies may have granted shares at a faster rate, due to the COVID-19 pandemic and decreases in stock prices, and therefore had to request additional shares sooner than anticipated. In 2020, 20% of the S&P 500 requested new shares as part of a new or amended stock plan. This percentage is a slight decrease from the 21% in the prior period but is still an increase over the 17% in 2018 and the 14% in 2017.
For the complete report on companywide equity compensation practices and trends from the S&P 500 for fiscal years 2017 to 2020, please download the PDF (below).
| Title | File Type | File Size |
|---|---|---|
| Share Utilization at S&P 500 Companies | 1.3 MB |
Companies must continue to ensure their share usage is in line with their needs to retain and motivate key employees amid the current market conditions while at the same time reevaluating and adjusting LTI plans due to external economic impacts. The need for adjustments and continuous analysis of share usage due to the impacts of the COVID-19 pandemic are far from over, as effects are not short-term and future impacts may not be fully known. The value and number of equity awards delivered in 2021 and beyond will continue to be affected to some extent by the ongoing reality of operating during a global pandemic and rising employee retention concerns. An early look at 2021 fiscal year grant practices indicates a decrease in median overhang and run rate levels along with lower LTI fair value as a percentage of market capitalization year-over-year, while the LTI fair value in an absolute dollar basis is projected to increase. We will continue to monitor these measures of equity grant practices as companies continue to modify their equity plans and grant practices in the year ahead.
