The Advisors' Blog

– Lynn Jokela

For those working with stock plans, periodic questions arise about how quickly other companies use up shares reserved under incentive plans or about the number of shares typically included in additional share requests.  To help answer some of those questions, FW Cook recently issued its 2020 aggregate share-based compensation report.  The report reviews share usage trend data covering the three-year period 2017 – 2019 from 300 companies spread across five industry groups.  Data analyzed includes annual grant rates based on annual share usage and fair value transfer (FVT), potential share dilution, prevalence of long-term incentive plan share requests and the allocation of long-term incentive pools to the “top 5” proxy officers.  Here are a few high-level highlights:

– FVT rates as a percentage of market cap were generally stable compared to the firm’s 2017 study – the median 3-year average annual rate was 0.92% in the current study

– Potential dilution from outstanding equity awards trended down over the last three years, and continues a downward trend observed over the last 12 years – driven by companies granting more equity in the form of restricted and performance shares, which typically use fewer shares than stock options and remain outstanding for far shorter periods of time

– Over 1/2 of the sample companies requested shareholder approval of an incentive plan share request and the median size of the requests was approximately 4% of common shares outstanding – with requests varying based on company size and the year of request

In terms of what we might see going forward, the report says that if companies encounter ongoing stock price declines for the rest of 2020 and into 2021, we’ll likely see increased FVT rates as companies grant more shares to help offset the market decline