The Advisors' Blog

Now is a good time to consider whether you’ll need to update your equity plan reserve at your next annual meeting – and if so, how many additional shares to propose. Often, this exercise also leads to questions about how your company’s share usage compares to practices at other companies. To help answer some of those queries, FW Cook recently issued its 2024 aggregate share-based compensation report.

The report reviews share usage trend data covering the three-year period 2021 – 2023 from 300 companies spread across five industry groups. Data analyzed includes:

– Company-wide annual grant rates, measured based on annual share usage as a percentage of weighted average basic common shares outstanding and fair value transfer (FVT) – which is the aggregate grant date fair value of all long-term incentive awards granted during a given year as a percentage of company market cap value at grant and as a percent of revenue

– Potential share dilution,

– Frequency and prevalence of long-term incentive plan share requests

– Allocation of long-term incentive pools to the “top 5” proxy officers.

Here are a few highlights:

– Annual FVT rates as a percentage of market capitalization were slightly lower compared to our prior 2020 study, with the median 3-year average annual rate decreasing from 0.92% in the prior study to 0.87% in the current study.

– Median FVT rates increased slightly for 2022 and 2023 compared to 2021. For 2023, FVT grant value and market capitalization declined slightly compared to 2022, resulting in FVT as a % of market capitalization remaining relatively consistent.

– Potential dilution from outstanding equity awards has trended downward over the last three years, falling from 3.0% at the median in the prior study to 2.7% in the current study. Driven by companies granting a greater proportion of equity awards in the form of restricted and performance shares, which generally use fewer shares than stock options for equivalent grant value and remain outstanding for far shorter periods of time.

– Allocation of long-term incentive pools to the Top 5 proxy-reported officers (including CEO) is closely linked to company size, as small-cap companies grant a significantly higher percentage of the overall pool to their top officers compared to largecap companies, who generally have more long-term incentive participants.

– Over the last three years, 53% of our sample companies sought shareholder approval of a new share authorization under employee stock plans.

– The median size of the requests ranged from 3% to 4% of common shares outstanding, with slight variation based on company size and year of request.

– Liz Dunshee