The Advisors' Blog

– Broc Romanek, CompensationStandards.com

As noted in this Towers Watson memo, in fiscal 2009, equity award practices reversed a multiyear trend of decreasing share usage as companies increased the number of shares granted to make up for some — but not all — of the value lost due to declining share prices during the market turmoil. In many ways, 2010 was a return to the norm as share utilization patterns resembled what we would have expected in 2009 without the economic woes that began in the fall of 2008. A preliminary review of grants awarded in 2011 confirms that utilization continued to stabilize last year.

Each year, Towers Watson reviews equity incentive practices at Fortune 500 companies to examine trends in run rate, long-term incentive (LTI) fair value and overhang. Run rate is the total number of shares awarded during a company’s fiscal year as a percentage of average common shares outstanding. LTI fair value is the sum of reported fair value of annual equity awards granted throughout the year as a percentage of average market capitalization. Overhang is the aggregate number of shares reserved for outstanding awards and future grants as a percentage of total common shares outstanding.