The Advisors' Blog

This HLS Blog post by ISS discusses the balancing act companies play when considering the terms of their equity plans and award agreements. On the one hand, compensation committees want flexibility to administer these programs to best attract and retain employees. On the other hand, investors prefer certainty and want to know that equity incentive plan shares will be used reasonably.

To see how companies are managing this balance, ISS studied trends in key plan terms since 2020 with a focus on minimum vesting requirements, payment of dividends and dividend equivalents on unvested awards, limits to the administrator’s capacity to accelerate awards, liberal share recycling, vesting conditions upon a change in control, repricing and cash buyouts and evergreen provisions. Here are the key takeaways from their review:

– No more than 15% of equity plans on the ballot over the past five years limit the plan administrator’s capacity to accelerate awards.

– Companies’ inclusion of Minimum Vesting Requirements within their plans has remained consistent. Over the past five years, four out of 10 equity plan proposals contain minimum vesting provisions.

– Although considered a problematic practice, there was a 5% increase in plan proposals with evergreen provisions within the Russell 3000 index in 2023.

– The prevalence of S&P 500 companies prohibiting the liberal share recycling of full value awards has decreased from 78% in 2020 to 70% in 2023. The same trend was observed for the liberal share recycling of appreciation awards, which decreased from 94% in 2020 to 90% in 2024.

– Meredith Ervine