The Advisors' Blog

People are optimistic that we’ll see more IPOs this year. If your company is considering going public, this ClearBridge Compensation Group memo outlines equity compensation issues that should be part of the planning. Here are the key takeaways:

Establishing a Stock Plan

▪ Median initial share pool is 10% of basic common shares outstanding (“CSO”)

▪ Majority of companies include an evergreen provision upon going public (~4% to 5% of basic CSO annually), recognizing they are almost always removed when shareholder approval is next requested

One-Time Special Grants in Connection with Going Public

▪ For CEOs, grants typically range from ~0.5% to 2.5% of market cap at grant, with an inverse relationship between market cap and grant value as a percent of market cap (i.e., grant values as a percent of market cap are generally higher at companies with lower market caps and vice versa)

▪ Over 2/3 of these grants include a performance-based vehicle such as stock options or performance share units (“PSUs”), often in combination with time-vested restricted stock units (“RSUs”)

▪ Most common performance metric is stock price/total shareholder return (“TSR”)

Go-Forward LTI Compensation

▪ >90% of public companies grant LTI on an annual basis, typically limited to more senior levels in the organization (e.g., directors and above)

▪ Common to initially solely grant time-vested vehicles (e.g., RSUs) annually, with companies generally beginning to introduce performance-vested LTI (e.g., PSUs) annually within 3 years

For even more info about compensation-related considerations before going public, check out the full memo – as well as Meredith’s blog last fall about “cheap stock” and other issues. Also visit our “IPOs” Practice Area for more resources.

– Liz Dunshee