The Advisors' Blog

This recent blog from NASPP Director Barbara Baska discusses the various options and common approaches to equity award retirement provisions. She shares some helpful survey data if you’re looking to understand how your approach stacks up generally. (Note that the survey responses related to all employees receiving equity — not just the c-suite.)

Almost 75% of respondents to the NASPP/Deloitte Tax 2024 Equity Incentives Design Survey pay out performance-based awards to retires, while 65% pay out service-based full value awards and only 63% pay out service-based stock options/SARs.

When paying out equity awards to retirees, companies must decide between accelerating vesting or allowing awards to continue to vest as originally scheduled. For performance awards, the predominant practice is to pay out the awards to retirees only at the end of the performance period (i.e., continuing vesting). Acceleration is considerably more common for service-based awards. For full value awards, 27% of respondents to the 2024 survey accelerate vesting and 32% continue vesting. For stock options, 22% accelerate vesting and 38% continue vesting.

For service-based awards, companies are more likely to provide a full payout (45% for options and 38% for full value awards) than a pro-rata payout (15% for options and 21% for full value awards). Practices are more evenly divided for performance awards: 36% of companies provide a full payout and 34% pay out awards on a pro rata basis.

With respect to retirement eligibility, just over 40% of respondents to the 2024 survey require employees to achieve both a minimum age and minimum years of service to be eligible to retire. But this is less than half of companies—the other 57% of respondents are all over the map:

• At 16% of companies, employees are eligible to retire when the sum of their age and their years of service equal a specified number (e.g., age + years of service = 70).
• At 10% of companies, employees can be eligible to retire when they reach A) a minimum age with a specified number of years of service or B) an older minimum age regardless of their years of service. For example, employees might be eligible to retire when they are 50 and have 10 years of service or when they are 55.
• Retirement eligibility is contingent only on age at 8% of companies.

The remaining 23% of companies use a variety of other approaches.

– Meredith Ervine