December 27, 2021
Equity Compensation Plans: S&P 500 Share Utilization Trends
Willis Towers Watson’s Global Executive Compensation Analysis Team (GECAT) found some equity compensation program trends for S&P 500 companies by analyzing the reported overhang, run rates and long-term incentive fair values for fiscal years 2017 through 2020, as well as those of 2021 mid-year filers. Here is an excerpt of their key findings – which may come in handy for counsel working with stock plans and considering additional incentive plan share authorization proposals for next year’s proxy:
– The use and mix of full-value awards continues to increase annually. Restricted stock usage was highest in the information technology sector (79% of LTI mix); performance-based stock usage was highest in the utilities sector (55% of LTI mix), and stock option usage was highest in the industrials sector (23% of LTI mix).
– S&P 500 median run rates have declined 10% since 2017, coinciding with a reduction in the use of stock options. The utilities sector experienced the most significant run rate decline of 22% since 2017. A preliminary review of 2021 grants shows this trend continuing.
– S&P 500 median overhang continued its downward trajectory from 7.4% in 2017 to 6.4% in 2020. The health care sector had the highest overhang rate at 8.5%, while the utilities sector continued as the sector with the lowest overhang rate at 2.4%.
– The highest median LTI fair value increase once again occurred in the communication services sector, which increased 114% over 2017 figures. The consumer staples and consumer discretionary sectors experienced a 4% and a 22% increase, respectively. A preliminary look at 2021 figures shows a higher LTI fair value on an absolute dollar basis, with a decrease in the value as a percentage of market capitalization year-over-year.
– The percentage of companies requesting shares to fund stock incentive plans increased from 14% in 2017 to 20% in 2020, while the average number of shares requested decreased from 3.8% (2018) to 3.2% (2020) of common shares outstanding (CSO).
– Emily Sacks-Wilner