April 13, 2018
Long-Term Incentives: A Simpler Way?
– Liz Dunshee
Do you ever feel like you’re constantly redesigning pay programs? It seems like someone’s always moving the goalposts to “better” align pay and performance. Is there a simpler way? Check out this blog from Meridian’s Bob Romancheck:
There is an emerging trend among a handful of large public companies, in the United States and Europe, to eliminate the distractions and complexities otherwise built into the design of long-term incentive programs. The goal, is to focus top executives on what really matters over the long term: share price appreciation. The vehicle of choice is, very simply, restricted stock with longer term vesting.
In some cases, there is one larger career grant, in others a five- and ten-year pro-rata vesting. No accounting or tax tricks, no complex “performance-based” pay exemption, just simple focus on stock price growth over the long term. This allows long-term decisions to play out, provides direct alignment with shareholders over the long term, and offers a builtin retention mechanism. Not too dilutive, a fixed accounting expense at grant, and the external market finances the hopeful appreciation. Seems too simple to be correct, but may be worth considering.
As I’ve previously blogged, a move to infrequent & meaningful equity grants could also be related to the growing influence of private equity backers…