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More Stocks, Fewer Options Awarded

More companies are awarding full-value shares of stock instead of options and are linking executive compensation to the achievement of specific goals. Equilar, an executive compensation data firm, says an increase in the trend has occurred, as this year’s proxy season is the third during which “Say on Pay” proposals are appearing.

The number of S&P 1500 index companies awarding stock options only (as opposed to stocks and options) to their employees declined to 5.0% in 2012 from 16.2% in 2007. At the same time, 32.6% of companies gave only restricted stock awards in 2012 versus 17.8% in 2007.

The percentage of S&P 1500 companies granting options fell to 65.2% last year, from 78.5% in 2007. The median number of stock options granted declined to 578,000, continuing a downward trend seen before 2007. At the same time, the proportion of companies granting restricted shares of stock reached 92.8% last year, versus 80.1% in 2007. A median 1.13 million restricted shares were outstanding last year compared to a median 617,000 in 2007.

Utilities were the largest granters of options, awarding a median of 1.04 million last year. Coming in a close second were health care companies, with a median 981,000 option grants awarded. Nearly three-quarters of health care companies gave both stock options and restricted stock, the largest proportion of any sector. Health care company options most commonly came with a five-year cliff vesting period, meaning the contracts could be not exercised for five years.

Equilar also conducted an analysis of chief executive officer CEO awards by taking an early look at proxies from 477 S&P 1500 companies with fiscal-2012 information. The number of companies granting performance-based equity grants to CEOs increased from 50.1% of companies in 2010 to 61.8% in 2012. Approximately 66.2% of these performance equity vehicles were pared with a long-term performance period. Four out of 10 performance equity vehicles were long-term incentive units, which are typically converted into cash or stock at the time of payout.

Source: “2013 Equity Trends Report,” Equilar (www.equilar.com).


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