The Advisors' Blog

– Lynn Jokela

Last week, I blogged about the scrutiny on executive compensation actions.  A recent Pearl Meyer blog also urges caution, particularly when thinking about making an equity grant now for purposes of retention and alignment with shareholders.  Here’s an excerpt:

Looking ahead three to five years, when the economy has fully recovered and stock prices are again robust, the executives who have been given extra equity grants today will begin cashing in on their gains. Unlike similar studies published in the middle of the last decade, these reports are likely to attract major attention. Investors are likely to hold the directors who gave out those equity grants, and the executives who are still active, accountable.

In terms of how directors should approach decisions about equity grants in today’s environment, the blog lists these questions to ask as a way to help guide any decisions:

– Was our stock price in early March truly reflective of our economic value?

– What is your estimate of how much cash the executive will lose in foregone salary and unearned bonus?

– If you make an equity grant now (whether a regularly scheduled award or a special grant), how much will the executive gain when the stock price gets back to “normal”?

– What else are you doing for the executives in terms of adjustments to incentive award calculations or using discretion in determining awards?

– Is the retention argument compelling in your case?