- Continued worldwide expansion of long-term variable compensation in lower levels of corporate hierarchy
- Dynamic markets still creating increasing heterogenous systems, resulting in increased implementation and administrative effort
Results of the Global Equity Insights Survey 2019
Frankfurt am Main, 15.07.2019. Entrepreneurship and ownership are the key objectives of equity-based compensation for companies worldwide, according to the recent Global Equity Insights Survey from the management consultancy hkp/// group. The study reveals key differences in the way equity-based compensation plans are designed across various economic regions. With companies increasingly adapting their plans to the advantage of both companies and to meet the needs of their local workforce, heterogeneous market practice on an international level remains still in 2019 in place.“The Global Equity Insights Study, now already in its seventh consecutive year, is among the most comprehensive analyses of worldwide market practice of equity-based compensation. Each iteration of this study has sought to reveal key trends and actionable takeaways for practitioners designing and administering compensation systems. As new topics and development areas are added, the results over time of core topics are reinforced with new trend data identified annually. The study thus offers experts the opportunity to evaluate their company’s compensation plans against new approaches and to consider implementing them,” explains Dr. Jan Dörrwächter, Senior Partner of hkp/// group.
Key result 1: Successful companies focus strongly on broad based eligibility
Broad-based eligibility is a mega trend and still critical in 2019. The further equity-based compensation extends into the company, the more successful. Based on TSR over the past three fiscal years, 42% of high performing companies offered a broad-based LTI to all its employees – in contrast, just 25% of low performing companies have this in place. Looking at share purchase plans reveals the same result: 80% of companies clustered as high performing have implemented a share purchase plan whereas only 61% of low performing companies have one.
“The link between company performance and equity culture remains in 2019 unbroken and isn’t just relevant for top management. Quite the contrary – including employee groups lower in the corporate hierarchy in equity-based compensation programs offers companies considerable opportunities. It contributes to an improved equity culture within the company, promotes longer term thinking and decision-making of employees, and moreover creates a substantial economic value add,” explains David Voggeser, survey leader and Senior Manager at hkp/// group.
Key result 2: LTIP in developing countries like China are increasingly important for attracting and retaining local talent
The study also reveals an important aspect of global equity programs. Especially in developing markets, employees desire equity compensation for a myriad of reasons. Nearly 85% of participating companies active in China reported that they offer their employees an LTIP and a Further 50% of companies have registerd with a local SAFE office to comply with the local Chinese requirements of equity-based rewards. While a spotlight was focused on China in 2019, offering equity compensation in these countries can be a strong competitive advantage in the talent market, even more so than in Europe. Further still, LTIP is often seen as a basic sign-on requirement in China, and a lack of equity compensation may be a strong competitive disadvantage, as top talents are desiring the rewards that come with their own “skin in the game.”
"Against this background, companies must coordinate their own concepts more intensively with local authorities and adapt existing plans to local regulations. Especially in emerging and developing countries it is not expedient and often forbidden to implement a global LTIP standard", explains hkp/// group study author Andrew Ryan Thain.
Key result 3: Companies are keen to “make their employees owners”
The study also helps formulate constructive arguments in favor of equity programs. Overwhelmingly, companies reported various forms of employee entrepreneurship (essentially “make your employees owners”) as their main objective. When communicating the advantages of equity programs to decision makers as well as participants, underlining entrepreneurship in addition to employee ownership is key. In addition, a compensation strategy that aims at a deeply integrated and well-balanced equity culture is a crucial factor for company success.
Key result 4: Educating plan participants in terms of financial literacy is seen as critical communication measure
Companies worldwide overwhelmingly reported financial education as a critical feature in successful communications of their equity plans. Understanding company success and what leads to it is thus seen as a top priority in addition to understanding how the compensation scheme is designed. This result is consistent across employee groups even at top levels. Only 4% of companies reported that their executives do not need financial education – which reinforces how important a common understanding of corporate strategy is for the financial wellbeing of the company.
Other trends in communications include movements towards more digital communication. While e-mails are still the most important means of information, other digital means of information are becoming increasingly important. This includes digital brochures or flyers as well as the intranet. On the other hand, outreach and interaction via social media still has not gained ground in 2019.
Key result 5: One size does not fit all when it comes to equity compensation
Finally, a large trend identified in 2019 concerns the individualization of compensation plans and the flexibility of companies to make adjustments to plans where necessary and/or advantageous to companies and the local workforce. Companies are increasingly allowing employees to make conscious decisions regarding their own pay packages in terms of plan vehicles when available. In addition, the study identified trends of companies offering varied plans to specific employee groups to remain agile and adjust to changing business landscapes. Criteria for adjustments include not just geographical location, but also industry, employee level as well as function.
Regulation and legal issues were identified regulation as the central obstacle for rolling out a completely globally standardized equity-based compensation plan in 2018. As a consequence, the study investigated ways in which companies do undertake these adjustments. 40% of companies adjust their LTI plans based on operating country, a result which is consistent across economic regions. European companies adjust their plans based on management level much less frequently than North American companies, indicating their plans are more consistent from the management board down.
Having the flexibility to offer an LTI outside of annual compensation cycles is commonly found in the market – however much more so in North America than in Europe. 84% of North American companies allow for extraordinary grants, whereas just 50% of European companies do so. With this flexible and direct approach, companies want to strengthen the positive effects of their LTIP offerings in the competition for the best talents.
Background information of the Global Equity Insights Study
The “Global Equity Insights Study 2019” was conducted in Spring 2019 in cooperation with the Global Equity Organization (GEO) under the academic guidance of the Chair for Management and Controlling at Georg-August University of Göttingen. The study is supported by Computershare, Fidelity Stock Plan Services, SAP, Siemens and as premium sponsors as well as the Rutgers University School of Management and Labor Relations. In total, 148 companies from 16 countries and 10 key industries took part in the study – predominantly global players with a special focus on North America and Europe. 98% of participating companies have a market capitalization of over 1 billion USD, with the top 20% having a market capitalization of over 50 billion USD as of the end of 2018.