Issue Brief: The State of Broad-Based Equity Plans

September 2008. 36 pp. (8.5" x 11"), printout (not a bound book). $15 for NCEO members; $25 for nonmembers.

This issue brief is updated on a regular basis to provide an overview of the prevalence of various kinds of broad-based equity plans, who is eligible for them, and what impact they have on corporate performance. Significant surveys and research are summarized and incorporated into the document as they become available.

The Impact of Options Expensing on the Stock Prices and Changes

The Response to Expensing, the New Exchange Rules, Changing Investor Expectations, and New Thinking on the Value of Equity Plans
Pre-FAS 123(R) Results
The Post-FAS123(R) Results
Implications

Employee Ownership and Corporate Performance: Does It Matter Who Gets Equity?

ESOPs and Corporate Performance
Broadly Granted Stock Options and Stock Price
Broadly Granted Stock Options and Corporate Performance
The Impact of Executive Options Compared to Options Granted to Any Non- Executive Employee
Performance Effects of Broad-Based Options in Closely Held Companies
Studies on Executive Equity Compensation and Corporate Performance

Conclusion

Appendix: General Social Survey Data on Employee Ownership

Excerpts

A survey by the National Association of Stock Plan Professionals (NASPP) and Deloitte Consulting showed that companies have cut back somewhat on broad-based equity plans, but that these plans remain an important part of the employee ownership landscape. The survey presents the data in a way that makes it difficult to figure out just what percentage of companies offer awards to most or all employees, but some inferences can be drawn. (This was not their primary purpose, however.)

The 2007 NASPP/Deloitte Consulting "Domestic Stock Plan Design and Administration Survey" found that among the 383 respondents (almost all public companies), the median percentage of employees participating in any kind of equity plan except an ESPP was 15%. Smaller companies were more likely than larger companies to have broad-based participation. The median was 75% or more in companies with up to 750 employees. At least 75% of the companies with fewer than 250 employees reported 100% employee participation in some kind of plan. As company size increases, the percentage drops so that full participation is rare at the largest employers. For companies with more than 10,000 employees, for instance, the 10% of companies with the highest participation levels average about 37% participation, while the typical company of that size has only 4% participation.

Looked at in another way, in companies with more than 30,000 employees, only 3% of the employees hold equity compensation awards. In companies with 251-750 employees, 75% do, while in smaller companies the percentage rises to 100%. The data within employer size categories are based on an equal-weighting for each company, regardless so size.

Looking at particular plans, 39% of companies make their non-exempt employees eligible to receive some kind of stock option or stock appreciation right. In those companies, 76% of eligible non-exempt employees actually do receive awards. In companies that offer restricted stock, restricted stock units, or direct stock grants that are not in lieu of cash (a few substitute stock for cash), 29% of employees are eligible overall, and 52% of these actually receive grants. We can infer from these results that 29.6% of employees get options and 15.1% get restricted stock. Because the results count each company equally, however, it is not possible to say that. For instance, if the sample just had two companies, one with 500 employees each getting options and one with 5,000 employees but only 10% getting options, the survey design would add 100% to 10% and divide by two to get 55% of employees getting options. In fact, only 18.2% are. Because we know that larger companies are less likely to have broad plans, so the number of employees overall getting options cannot reliably be drawn from these data, just the number within various size categories.

The data on ESPPs included 348 companies, 60% of which had ESPPs. Of those plans, 77% were qualified plans under Section 423 of the Code. Among companies with 423 plans, 16% reported participation rates of 71% or more, and 29% had participation rates of 50% or more. Non-qualified plans, which unlike Section 423 plans do not have to be broad-based, had much lower participation. A total of 79% of the companies with Section 423 plans said they offer a 15% discount, and another 6% offer a 10% discount. Two-thirds of the 423 plans have a look-back feature in which the purchase price is based on the lower of the stock's price at the beginning or end of the offering period. Offering periods tended to be short: 48% of the companies with Section 423 plans had six-month offering periods, and another 18% had thee-month offering periods.

The full survey results, which cover a wide variety of plan design and administrative practices, are available to members of the National Association of Stock Plan Professionals (www.naspp.com).

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Issue Brief: The State of Broad-Based Equity Plans

Contents

Excerpts

How to Order