- Equal Pay is top priority – most companies have already conducted analyses
- Say on Pay in combination with ESG topics a significant driver of change
- COVID-19 pandemic viewed as one-off exogenic shock, but administration requirements likely to increase
Frankfurt, August 03, 2021. Volatile markets, external forces and global shocks have significantly influenced equity programs over the past year, according to the now published Global Equity Insights Survey from the management consultancy hkp/// group. The survey reveals key differences in the way equity-based compensation plans are designed across various economic regions. Furthermore it shows that companies are making adjustments to their equity plans in response to new requirements and challenging economic conditions.
“The Global Equity Insights Survey, now already in its ninth consecutive year, is the most comprehensive analyses of worldwide market practice of equity-based compensation. Each iteration of this survey reveals 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 annually. The survey thus offers experts the opportunity to evaluate their company’s compensation plans in challenging economic conditions as a result of global crises and to consider how to make necessary adjustments,” explains David Voggeser, Partner of hkp/// group.
The survey flyer is available for download at www.hkp.com/GEIS2021.
Key result 1: Broad LTIs and higher performance through larger LTI portions in the pay mix
Since the inception of the survey in 2013, the topic of LTI eligibility and pay mix especially for lower levels of the organization has been a core topic. As in the past years, a correlation between the use of equity-based compensation on a broad basis and overall company performance has been observed. Higher performing companies tend to grant LTIs to a larger population of their workforce at the median. This relationship also holds for the connection between eligibility and participation. In companies where eligibility guarantees a LTI grant, performance tends to be higher.
“The link between company performance and equity culture remains unbroken even throughout the pandemic 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 helps employees to think past the pandemic,” explains David Voggeser.
The pay mix of more successful companies tends to be more long term in nature. The LTI portions, based on both ROA as well as TSR, are up to 5% more for high performing companies throughout the entire organization. Further, applying Share Ownership Guidelines (SOGs) can help translate the pay mix into an even longer term element. In 92% of high performance companies, SOGs are in place in comparison to 66% of low performing companies.
Key result 2: “Say On Pay” has increasing influence on equity programs
In the 2010s, an important movement in the market began: in addition to the increasing attention of governmental bodies, capital markets underwent an important shift which influenced how investors, especially institutional investors, are choosing to allocate their capital. Say On Pay voting started to become a top issue at Annual General Meetings (AGMs) in North America and Europe at a time when the Dodd-Frank Act (USA) and the Second Shareholders’ Rights Directive (Europe) have now both come into full effect. Investors are thus gaining increased influence on compensation systems and, as a result, large influence on corporate strategy. “As the underlying strategy of management board compensation is so often cascaded down to the top executives and employees, it has the potential to change the fundamental landscape of equity-based compensation,” says Andrew Thain, Senior Consultant and survey leader. “Over half of the companies reported a significant impact of Say On Pay topics on the design of equity programs, indicating Compensation and Benefits departments need to be working together with Investor Relations regarding designing equity programs.”
Key result 3: Financial education is the critical link to increasing perceived value
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,” says Andrew Thain. 83% of high performing companies reported “financial education” as a crucial component of a successful communications plan for equity compensation. 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.
Key result 4: Equal pay is increasingly important
Building upon other ESG topics within GEIS 2021, “Equal Pay” is a focus topic of this year’s survey. With increased interest in Equal Pay Analyses, GEIS 2021 offers its contribution to the discussion from the perspective of equity programs. “That the majority of participating companies have already conducted analyses investigating gender pay is well documented – however, the majority of companies are also building other parameters such as age, experience, race, etc. into their analysis to make their models more robust and comprehensive,” explains Andrew Thain. Further investigating target vs. actual compensation also allows companies to determine whether final take-home pay is also being considered. Finally, the survey reveals that higher performing companies are more likely to conduct these analyses and take action to correct the existing gaps.
Key result 5: Pandemic seen as one-off exogenous shock
GEIS 2021 is the only equity survey worldwide to have been created and conducted entirely during the COVID-19 pandemic. At the time of survey data collection, few companies had intentions of making significant adjustments to their equity plans. Despite increased volatility and uncertainty in capital markets, companies view the pandemic as a one-off exogenic shock. While typical equity program parameters such as KPIs, vesting schedules, grant policies and plan types have not undergone significant changes, many companies reported increases in administrative effort.
In the short term, many companies granted a special equity grant to recognize and appreciate the commitment of their staff during the pandemic. “A full 20% of companies, often with tax optimized plans offered through government programs, offered their employees a special grant during these difficult times,” explains David Voggeser. The long term effects of the pandemic will likely become clear as the “new normal” sets in. At the time of publication, however, the pandemic cannot yet be written off as behind us.
Background information of the Global Equity Insights Survey
The “Global Equity Insights Survey 2021” was conducted in Winter/Spring 2021 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 survey is supported by Computershare, Fidelity, SAP and Siemens Energy as premium sponsors. In total, 196 companies from 21 countries and eight industries took part in the survey – predominantly global players with a special focus on North America and Europe.
Background information hkp/// group
The hkp/// group is a partner-led, international consulting company. hkp/// group Partners are accomplished transformation consultants and respected leaders of innovation in HR. They advise large and medium-sized international corporations as well as start-ups with whom they develop tailor-made and practical solutions. hkp/// group partners all have many years of international consulting and business experience. They are recognized in the market as experts for executive compensation, board services, performance and talent management along with HR strategy and transformation, HR and compensation benchmarking. Our partners are regarded as competent contact persons by regulators and boards of directors, board members and senior executives, as well as HR managers and specialists.
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