The Advisors' Blog

Taking a company public is a big milestone – and it can have a big impact on how the business manages talent, incentives and performance. This FW Cook blog dives into trends in long-term incentive programs for companies that IPOed during 2020 and 2021 – specifically, in the tech industry. This data can be helpful to see if you’re on the verge of an IPO or if you recently went public. Here’s an excerpt:

When companies are newly public, they often focus on rapid growth, with equity awards designed to encourage and reward large scale increases to stock price over a short time horizon. Companies at this stage also typically have difficulty projecting multi-year performance, which makes granting performance-based equity challenging and risky. However, as companies mature in the public market, there is a clear shift toward performance-based LTI structures.

At newly public technology companies, it is more common to grant time-based LTI only, with 77% using stock options, RSUs, or a mix of the two, and only 23% issuing performance-based LTI. After two to three years as a public company, however, 39% of the companies studied included some performance-based component.

The blog goes on to analyze the rationale for different LTI mix combinations – from use of simple one-vehicle LTI awards to using options, RSUs and performance equity to encourage operational excellence in addition to revenue growth. The FW Cook team notes that market volatility and changing business conditions can also influence award design as a company matures.

– Liz Dunshee