trends in international stock plans naspp phoenix chapter meeting november 13, 2007 carine schneider...
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Trends in International
Stock PlansNASPP Phoenix Chapter Meeting
November 13, 2007
Carine SchneiderCEOGlobal Shares
2
General
Trends
• Participation rates continue to decline• Increased mix of equity vehicles in play
• Decreased use of stock options • Increased use of restricted stock and other share grants
• Overall value delivered to employees is down, especially below the executive levels
• Geographic use of equity has increased• Equity programs in general are gaining flexibility as
companies are preparing to better meet stakeholder needs• Expensing has had a tremendous affect on plan design and
backdating has had a tremendous affect on corporate America
• The sub-prime mortgage mess will impact stock plan administration
3
Results from
Buck Global
Equity Survey
• Roots of survey date back to 1995
• New survey format in 2004
• Detailed look at actual LTI award practices in 35 countries
• Current database includes data from 147 companies
• Primarily U.S.-based multinationals
• Primarily technology corporations
• 8 of 10 largest tech firms
• 72% of Fortune 500 technology companies
4
All Equity Participation Rates - 2004-2006
82%
90% 91%
81%
59%
24%
78%
85% 86%
75%
56%
26%
76%
85% 83%
70%
51%
24%
0%
25%
50%
75%
100%
CEO Vice President Director Manager Indirect LaborDirect Labor
2004
2005
2006
• 8.6% fewer employees overall received any form of equity in 2006 vs. 2004
• Greatest impact seen at Manager level
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Use of Equity
is Expanding
• Despite trends to deliver less value to employees, companies expanding use of equity compensation on a global basis
• Companies increased geographic coverage of equity programs by 25.4% between 2004 and 2006
• Greatest gains in use of full value shares (restricted stock)
• Modest increases in appreciation vehicles also occurred• Ongoing Full Value Shares - 102%• New Hire Full Value Shares - 99%• Ongoing Stock Options - 8%• New Hire Stock Options - 7%
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Use of Equity
is Expanding
• Greatest gains seen in key Asian markets• India
• Use of appreciation vehicles up by ~35%• Use of full value awards up by ~140%
• South Korea• Appreciation vehicles up by ~20%• Full value awards up by ~210%
• China• Appreciation vehicles up by ~12%• Full value awards up by ~110%
• Some decline in use of appreciation vehicles, primarily in smaller European countries (e.g., Belgium, Finland) and New Zealand
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LTI Program
Prevalence
2006 LTI Vehicle Prevalence
94%
33%30%
64%
57%
42%
35%
17%
0%
25%
50%
75%
100%
StockOptions
S-SARS C-SARS RestrictedStock
RSU/DSU PRS PARS UnrestrictedStock
Com
pan
ies w
ith
Veh
icle
s
Appreciation VehiclesFull Value Awards
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2004 2005 2006
Equity Vehicle Usage - 2004-2006
95% 90% 77%
5% 10% 23%
0%
25%
50%
75%
100%
Full Value AwardsAppreciation Vehicles
Equity Vehicle
Mix
• While options are still king, restricted stock awards are coming on strong
• Not just in reaction to IASB/FAS
• Lower stock price appreciation in recent years reduces perceived value of options
• Greater retention value for key employees
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Ongoing Awards - Average LTI Pay Mix
0%
25%
50%
75%
100%
20
04
20
06
20
04
20
06
20
04
20
06
20
04
20
06
20
04
20
06
20
04
20
06
20
04
20
06
CEO VP DIR MGR ICIL ICDL All
Cash LTI Full Value Shares Appreciation Vehicles
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• Although equity delivery remains concentrated at the higher levels, restricted stock and other full value awards are also moving down in the organization
Distribution of Awards - 2004-2006
2004 2006 2004 2006CEO 6% 10% 6% 12%Vice Presidents 29% 34% 63% 48%Directors/Senior Managers 21% 20% 17% 15%Managers/Supervisors 17% 14% 6% 11%Indirect Labor 27% 22% 8% 13%Direct Labor 1% 1% 0% 0%
Options/SARs Full-Value Shares
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• 63 cornerstone companies in the survey granted approximately $6.6 billion in equity awards in 2006, an average of $107 million per company
• This represents a decrease of 10.8% in value delivered over 2004
• During same period, value delivered in the U.S. decreased by 12.5%
Losers
Philippines -60%
Ireland -47%
Israel -45%
Winners
Austria +47%
China +14%
Finland +13%
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• When looking at the data from a pay band perspective, a more predictable result appears — lower level staff is disproportionately affected
• From 2004-2006 there has been a significant drop in the overall value for employees with salaries
below $200,000. Change in All Equity Value - 2004-2006
Pay Band CEO VP DI R MGR I CI L Percentage Change>= 550,000 0.2% 7.6%350,000 - 549,999 -9.8% -25.3%275,000 - 349,999 -12.7% 36.6% 13.5% 5.5%225,000 - 274,999 -27.1% -14.9% -34.8% 18.7%200,000 - 224,999 -28.3% -10.9% 7.3% 16.4%175,000 - 199,999 -30.5% -28.5% -27.8% -31.2%150,000 - 174,999 -46.9% -8.4% -31.7% -22.6%100,000 - 149,999 2.7% 0.5% -25.7% -28.7%75,000 - 99,999 -24.9% -21.9% -15.4%50,000 - 74,999 -10.6% -24.9%25,000 - 49,999 28.9% -35.7%< 24,999 15.8%Employee Group Total 0.2% 7.6% -17.5% -9.3% 0.3%
-18.4%
-3.6%
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• Although U.S.-based employees still receive highest overall levels of equity, differences between countries are closing
Grant Values as a % of Headquarters Country - 2004-2006
0%
20%
40%
60%
80%
100%
Aust
ralia
Chin
a
Hong
Kong
Ind
ia
Jap
an
Kore
a
Mala
ysi
a
New
Zeala
nd
Phili
pp
ines
Sin
gap
ore
Taiw
an
Aust
ria
Belg
ium
Denm
ark
Fin
land
Fra
nce
Germ
any
Irela
nd
Isra
el
Italy
Neth
erl
and
s
Pola
nd
Sp
ain
Sw
ed
en
Sw
itze
rland
Unit
ed
Kin
gd
om
Bra
zil
Canad
a
Mexic
o
Unit
ed
Sta
tes
Asia-Pacific Europe/Middle East Americas
20042006
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Building
Flexibility into
Equity
Programs
Companies increasingly are preparing to offer more customized equity compensation solutions in the future
• More companies are establishing award guidelines at local or regional levels
• Companies continue to adjust equity vehicle mix
• Use of single equity vehicle is declining
15
Building
Flexibility into
Equity
Programs
From a design perspective, more companies are building in a performance equity option
• 46% of companies now have ability to make awards
• Use of full value awards with performance attachments more than doubled between 2004 and 2006 – from 12% to 26%
• 10% of companies also granted options with performance attachments in 2006, up from 4% in 2004
• Overall, 2% of all awards made in 2006 incorporated performance measures, up from 1% in 2004
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Building
Flexibility into
Equity
Programs
New attitudes appear to be developing around Employee Stock Purchase Plans• 87% of companies continued to use a 15%
discount, despite the accounting charge associated under FAS 123R
• Lookback features have fallen off due to FAS 123R, but not as much as some may have feared• In 2006 74% still had some form of
lookback feature, vs. 83% in 2005• The predominant practice is still a 6 month
offering/purchase periods• Predicted shorter periods have not yet
become reality
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Other Findings
• Equity awards are typically made on an annual basis
• 38.2% of all awards are made during the first quarter (Jan-Mar)
• 12.5% made in Q2 (Apr-Jun)
• 22.7% made in Q3 (Jul-Sep)
• 26.6% made in Q4 (Oct-Dec)
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Other Findings
• Average vesting period for stock options has declined from 4.0 to 3.73 years between 2004 and 2006
• During the same period, option term dropped from 9.1 to 8.5 years
• Number of new employees receiving awards upon hire is also declining, especially below the Director level
• ~8% decline at Manager level; ~12% at individual contributor level
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Creative Plan
Designs
Playing with vesting
Creating a “sub company”
Stock ----- Cash (Phantom)
Using stock in a sales comp program
Stock units (psychological plans)
Net share ESPP plans