The Advisors' Blog

This is one risk/consequence of the accelerated pace of AI development & adoption — or at least AI hiring — that I hadn’t considered: your share pool replenishment may not keep up! On LinkedIn, Aon’s Laura Wanlass shared some insightful takeaways from the work Aon is doing right now on preliminary share pool analyses for calendar year-end companies. Here’s what she said on this point:

The competition for AI talent is accelerating the use of available share pools more quickly than many anticipated. Small- to mid-cap companies, in particular, are leveraging shares from shareholder-approved equity compensation plans to attract top talent, rather than relying on cash awards or utilizing NYSE and Nasdaq inducement grant exceptions. As a result, many organizations are contemplating reductions in broad-based equity awards for other business units, often without fully exploring alternative strategies that may be available.

At the same time, fluctuating share prices aren’t helping:

Ongoing stock price volatility and depressed valuations across certain sectors are making it increasingly challenging for companies to deliver market-competitive equity grants using targeted economic value approaches, maintain prior levels of companywide participation, or preserve historical long-term incentive vehicle mixes. This environment necessitates a more creative approach to equity compensation. Companies should consider strategies such as implementing effective Employee Stock Purchase Plans (ESPPs) or adopting fixed share grant methodologies for different employee segments to maintain broad-based share ownership.

Laura says companies may struggle to secure FOR recommendations from ISS and Glass Lewis due to dilution & burn rates, and she makes some suggestions:

Proactively providing investors with clear, contextual information about dilution and burn rates can be instrumental in engagement efforts–especially when you cannot pass ISS or Glass Lewis policies.

It is more important than ever for companies to begin share modeling by first assessing internal needs and ensuring sufficient funding for critical talent initiatives, rather than focusing solely on proxy advisor guidelines.

– Meredith Ervine