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2015 Equity Trends Report | 2
3. Contents
2015 Equity Trends Report | 3
Introduction 4
Executive Summary 4
Methodology/Key Findings 5
Equity Grant Practices 6
Prevalence of Equity Packages Among S&P 1500 Companies 7
Restricted Stock 8
E*TRADE Commentary 8
Options 10
Restricted Stock and Options Comparison 12
E*TRADE Commentary 12
Performance Equity 13
Percentage of S&P 1500 Companies Granting Performance Equity Vs. Options 14
E*TRADE Commentary 14
Prevalence of Companies Granting Performance Equity by Sector 15
Performance Equity by Vehicle and Plan Type 16
E*TRADE Commentary 16
Most Prevalent Metrics Determining Performance Equity by Sector 17
E*TRADE Commentary 17
Time-Based Equity Vesting 18
Equity Vesting Schedules 19
Equity Vesting Schedules by Sector 20
E*TRADE Commentary 20
Dilution 21
Total Overhang Among S&P 1500 Companies 22
E*TRADE Commentary 22
Option and Stock Overhang Among S&P 1500 Companies 23
Run Rate Among S&P 1500 Companies 24
Prevalence of Evergreen Provisions Among S&P 1500 Companies 24
E*TRADE Commentary 24
Statistical Appendix 25
4. Executive Summary
With options continuing to disappear from incentive plans and the recent focus on pay for performance from
shareholders, performance equity has been on an upswing. Indeed, the percentage of companies in the S&P 1500
that granted performance equity has increased 17.7% since 2010.
Relative total shareholder return (TSR) is far and away the most prevalent metric to which companies prefer to tie
performance equity, with nearly half of the S&P 1500 using it in at least one of their performance awards. Notably, it
is also the most popular equity vehicle among every industry sector. Metrics such as earnings per share and revenue
commonly follow as the next most prevalent.
In just the past year, the number of options granted has fallen 32.5% among companies in the S&P 1500. And
across a 5-year period from 2010 to 2014, the number of options granted dropped 67.6%. Whether or not options
are effectively linking pay to performance is still under debate, so the decrease in options awards could partially be
due to the fact that investors tend to view options as a time-based and not a performance equity vehicle.
As companies continue to remove options from their equity packages, restricted stock continues its rise as a
sole equity vehicle. Since 2010, the number of companies that granted only restricted stock in equity packages
increased more than 15 percentage points. Accordingly, the number of companies that granted no equity, only
options or a mix of options and restricted stock decreased.
Median equity overhang has decreased as well, going from 4.3% to 3.8% in 2014. However, overhang from stock
has remained constant in the past year, attributing the overarching decrease almost solely to the large reduction in
option overhang.
20%
30%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014
OptionsPerformance Equity
∙ ∙ ∙ 69.3%
∙ ∙ ∙ 60.7%
Percentage of S&P 1500 Companies Granting Performance Equity Vs. Options
2015 Equity Trends Report | 4
5. Introduction
The Dodd-Frank Act is still in the spotlight upon its 5-year anniversary, and
scrutiny toward executive compensation and pay-for-performance remains a hot
topic. As such, equity, the cornerstone of executive compensation, continues to
play an essential role in governance matters for proxy advisors, shareholders and
companies alike. Although 2014 changes to equity trends have been less drastic
relative to previous years, the overarching trajectory has remained the same.
Shareholders’ push for companies to tie equity and performance has resulted in
companies continuing to increase their usage of performance equity, trending
toward using restricted stock as the premier equity vehicle. Consequently, options
awards have continued falling in all indices and industries in the S&P 1500.
Methodology
This report sheds light on how the country’s largest public companies motivate and
reward their leadership through compensation. For information regarding 2014, this
analysis included all named executive officers (NEOs) in S&P 1500 companies with
at least one year of publicly disclosed equity grant practices available at the time of
writing (n=1,460). For data regarding 2010 to 2013, the dataset reflected S&P 1500
companies with four years of publicly disclosed equity grant practices (n=1,345).
This reflects a change in methodology moving forward, in order to represent trends
in the S&P 1500 as an index instead of the S&P 1500 as a specific set of companies.
Throughout the report, restricted stock and restricted stock units are referred to
as restricted stock. Options and stock appreciation rights (SARs) are summed in
graphs and calculations unless otherwise stated, which also applies to restricted
stock and restricted stock units. Additional data can be found in the appendix at the
conclusion of the report.
KEY FINDINGS
• The share of S&P 1500
companies granting
performance equity
awards increased to
69.3% in 2014, up from
68.9% in 2013 and 51.7%
in 2010. Long-term
stock units remained
as the most popular
performance equity
vehicle, accounting for
49.9% of all performance
equity.
• Option use has
continued its decline,
with 60.7% of
companies granting
options in 2014,
compared to 63.9% in
2013 and 75.6% in 2010.
• 37.9% of companies
granted exclusively
restricted shares, up
from 34.7% in 2013 and
22.3% in 2010.
• Graded vesting remains
the preferred vesting
schedule, with 78.8%
of equity granted in
2014 vesting in multiple
installments instead of
just one lump sum.
• Median overhang
among companies fell to
3.8% in 2014 from 4.3%
in 2013.
2
3
4
5
1
2015 Equity Trends Report | 5
7. Equity grant practices have evolved considerably over the past five years.
A majority of companies in the S&P 1500 continue to offer a mix of both
restricted stock and options; however, that figure is diminishing, falling from
67.5% in 2010 to 57.4% in 2014. Meanwhile, companies that offer restricted
stock exclusively as an equity benefit have become an increasing subset of
the S&P 1500, increasing to nearly 38% of companies in 2014. Overall, the
trends point to a decrease in options awards, and the percentage of companies
providing options exclusively as a method of equity grants has diminished
significantly over the past five years as well.
DATA POINTS
• From 2010 to 2014, S&P 1500
companies that only grant
restricted stock has grown more
than 15 percentage points,
increasing from 22.3% to 37.9%
in that time frame (Fig. 1)
• Companies that award only
options/SAR as an equity
package now account for only
3.3% of companies in the S&P
1500, down from 8.1% in 2010
(Fig. 1)
• The percentage of companies that
use neither stock nor options has
steadily declined since 2010, falling
from 2.1% to 1.4% in 2014 (Fig. 1)
0%
20%
40%
60%
80%
100%
2010 2011 2012 2013 2014
RS / RSUs Only Both NeitherOptions / SARs Only
8.1%
6.8%
5.1%
65.5%67.5% 62.3% 59.6%
34.7%30.7%26%22.3% 37.9%
57.4%
4.3%
3.3%
Prevalence of Equity Packages Among S&P 1500 Companies1
Equity Grant Practices
2015 Equity Trends Report | 7
8. DATA POINTS
• The amount of stock granted
among S&P 1500 companies in
the 75th percentile was flat from
2012 and 2014, totaling 1.1 million.
However, that figure is up from
950,000 in 2010 (Fig. 2)
• Outstanding stock among
companies in the 75th percentile
remained at 2.6 million from 2013
to 2014, but increased from 2.1
million in 2010 (Fig. 3)
0
200
400
600
800
1,000
1,200
2010 2011 2012 2013 2014
25th Percentile 75th Percentile50th Percentile
∙ ∙ ∙ 1.1MM
∙ ∙ ∙ 450
∙ ∙ ∙ 168
0
500
1,000
1,500
2,000
2,500
3,000
2010 2011 2012 2013 2014
25th Percentile 75th Percentile50th Percentile
∙ ∙ ∙ 2.6MM
∙ ∙ ∙ 1.0MM
∙ ∙ ∙ 410
Year-Over-Year Restricted Stock Granted in the S&P 15002
Year-Over-Year Restricted Stock Outstanding in the S&P 15003
THOUSANDSTHOUSANDS
Equity Grant Practices (continued)
E*TRADE Corporate Services Commentary
As seen in the chart above, the popularity of issuing RS or RSUs as the only form of an equity grant has steadily
increased since 2010. While companies that issue options and Stock Appreciation Rights (SARs) by themselves or along
with RS/RSUs are still a significant percentage (60.7%) of the population researched, the rise of RS/RSU grants as the
primary means of equity compensation is undeniable. This shift seems to correlate with three key catalysts:
• The adoption of FAS 123(R) by the Financial Accounting Standards Board, which required a fair value to be
calculated and expensed for options, effectively eliminating one of the benefits of options.
• The financial crisis of 2008/2009, which put many employees’ options or SARs “underwater,” reducing the value
perceived by employees who received this form of equity.
• Lastly, the growing concerns over corporate governance and dilution, which disadvantages options since one
needs to issue more options to achieve the same “monetary value” of a grant.
Restricted Stock
While recent years have seen an
upsurge in exclusive use of restricted
stock among companies as an equity
grant practice, 2014 marks a year of
little change in terms of amount of
stock granted or outstanding. Medians
for both restricted stock granted and
outstanding saw a marginal increase
compared to 2013.
Over time, however, those figures had
grown significantly before flattening
in recent years. Since 2010, the
median number of restricted stock
and restricted stock units (RS/RSUs)
granted across the S&P 1500 increased
20.8%, reaching 450,198 in 2014.
Meanwhile, the median number of RS/
RSUs outstanding among companies in
the S&P 1500 in 2014 was 1.0 million, a
21.4% increase since 2010.
2015 Equity Trends Report | 8
9. Stock grants across industry sectors varied greatly in 2014. S&P 1500 companies
in the technology sector granted the most stock in 2014, offering a median
798,000, significantly higher than the other sectors. In fact, the median value
for restricted stock grants in the technology sector was 77.3% above the overall
median, and the 75th percentile was nearly twice that of the next highest sector,
basic materials. The industrial sector granted the least amount of restricted stock
overall, with the median value at 240,332, 53.4% below the S&P 1500 median.
DATA POINTS
• The 75th percentile in the industrial
goods sector showed restricted
stock granted at just 533,000.
The next lowest sector at the 75th
percentile, Utilities, totaled 722,000
in 2014 (Fig. 4)
Equity Grant Practices (continued)
0 500 1,000 1,500 2,000 2,500
25th Percentile 75th Percentile50th Percentile
Basic
Materials
Consumer
Goods
Financial
Healthcare
Industrial
Goods
Services
Technology
Utilities ∙ ∙ ∙ 722
∙ ∙ ∙ 2.2MM
∙ ∙ ∙ 964
∙ ∙ ∙ 533
∙ ∙ ∙ 1.2MM
∙ ∙ ∙ 952
∙ ∙ ∙ 915
∙ ∙ ∙ 1.3MM
Restricted Stock Granted by Companies in the S&P 15004
E*TRADE Corporate Services Commentary
The factors discussed on the previous page have likely contributed to the rise in RS/RSU popularity. However, this
is not the end of the story. It is hard to reject the relative simplicity of RS/RSU grants compared to other forms of
equity compensation. E*TRADE Corporate Services’ research and participant commentary indicate employees tend
to understand this form of equity more easily1
. If a goal of granting equity is to attract and retain top talent, there is a
definite benefit if employees have an easier time understanding and valuing the grant. Furthermore, there is a benefit to
employees not having to take any further action once the grant is vested, unlike options which can expire if an employee
does not exercise his or her vested grant, which may create unnecessary complexity for the issuing company.
THOUSANDS
2015 Equity Trends Report | 9
10. Options
Options prevalence has continued to fall
in recent years. In 2010, median options
granted for the S&P 1500 stood at
nearly 400,000, and dropped to 122,428
in 2014. In the span of just the past year,
the median number of options granted
fell 32.4%. Notably, the 25th percentile
of the S&P 1500 granted zero options,
a consistent trend throughout the past
several years.
The median number of options
outstanding among the S&P 1500 has
also decreased in the past five years,
now half of what it was in 2010. In 2014,
median options outstanding for the
index totaled 1.6 million, down from 3.5
million five years ago.
DATA POINTS
• In 2010, the 25th percentile for
the S&P 1500 granted 3,000
options, but that figure quickly
declined to zero in 2011, where it
has since remained (Fig. 5)
• With nearly 10 million options
outstanding in 2010, the 75th
percentile among S&P 1500
companies dropped to 4.9 million
in 2014 (Fig. 6)
0
300
600
900
1,200
1,500
2010 2011 2012 2013 2014
25th Percentile 75th Percentile50th Percentile
∙ ∙ ∙ 600
∙ ∙ ∙ 122
∙ ∙ ∙ 0
0
2,000
4,000
6,000
8,000
10,000
2010 2011 2012 2013 2014
25th Percentile 75th Percentile50th Percentile
∙ ∙ ∙ 4.9MM
∙ ∙ ∙ 1.6MM
∙ ∙ ∙ 371
Year-Over-Year Options Granted in the S&P 15005
Year-Over-Year Options Outstanding in the S&P 15006
Equity Grant Practices (continued)
THOUSANDSTHOUSANDS
2015 Equity Trends Report | 10
11. Equity Grant Practices (continued)
At an industry sector level, median options granted for every sector decreased
from 2013. Uniquely, S&P 1500 companies in the utilities sector granted zero
options in 2014, and financial companies also had a zero level at the median.
Meanwhile, healthcare has continued to grant significantly more options than all
other sectors, and the industry saw a median 565,308 options granted in 2014.
DATA POINTS
• After healthcare – an outlier at 1.7
million options granted in the 75th
percentile – technology was the
next largest sector with 700,000
options granted at that deviation
(Fig. 7)
0 500 1,000 1,500 2,000
25th Percentile 75th Percentile50th Percentile
Basic
Materials
Consumer
Goods
Financial
Healthcare
Industrial
Goods
Services
Technology
Utilities ∙ ∙ ∙ 0
∙ ∙ ∙ 700
∙ ∙ ∙ 690
∙ ∙ ∙ 549
∙ ∙ ∙ 249
∙ ∙ ∙ 684
∙ ∙ ∙ 504
∙ ∙ ∙ 1.7MM
Equity Mix Among Companies in the S&P 1500 by Sector7
THOUSANDS
2015 Equity Trends Report | 11
12. Restricted Stock and Options Comparison
Among S&P 1500 companies that granted a non-zero value
for a given type of equity, the average number of RS/RSUs
granted was 1.6 million in 2014, and the average number of
options/SARs granted was 1.5 million. This represents a flip-
flop from 2010, when the average number of options granted
totaled 2.0 million, vs. 1.9 million shares of restricted stock.
Of the companies that granted a non-zero amount of equity,
the actual grant amounts have dropped for both restricted
shares and options relative to 2013. Comparatively, option
grant values dipped 12% from last year while stock fell just
4.9%. Since 2010, actual option grant values have decreased
by 23.3% and stock has decreased by 14.0%. This data, in
conjunction with the overall equity granted mentioned in the
two previous sections, shows that option use is significantly
decreasing from a combination of less use of options as an
equity vehicle as well as drop in total grant values. On the
other hand, more companies are using stock as a vehicle,
though they have been granting less volume in recent years.
Equity Grant Practices (continued)
500
1,000
1,500
2,000
2,500
3,000
1.5MM
1.6MM
2010 2011 2012 2013 2014
Restricted Shares Options
.
..
..
.
Average RS/RSUs and Options/SARs Granted Conditional on Non-zero Grants8
E*TRADE Corporate Services Commentary
Many companies have moved toward value-based grants for their equity compensation programs, rather than defining
grants by a number of shares. As the economy improves and the stock market strengthens, by using these types of
awards, the granted value may stay steady year over year. However, the number of shares granted decreases because
the “per share” value has increased. This certainly helps with dilution over time, which for some companies is a
consideration, but there is also a benefit for Human Resources and Compensation professionals to consider. Granting
a value is easy to explain to an employee, and fits well into a total rewards view of compensation strategies. This is
becoming a real factor in how to compensate employees, with some companies even allowing employees to select the
percentage of pay they would like directed to cash versus equity.
THOUSANDS
2015 Equity Trends Report | 12
14. Performance Equity
As companies work to meet shareholders’ expectations regarding overall pay and performance alignment,
performance equity awards—which have payout values dependent on predefined metrics—have become the vehicle
of choice for incentivizing leaders at many companies. Since 2010, the percentage of companies in the S&P 1500 granting
performance equity has risen significantly, reaching 69.3% of that group in 2014, up from 51.7% in 2010. That percentage,
however, has begun to flatten, and year-over-year growth in the percentage of companies granting performance equity
increased just 0.3% from 2013 to 2014.
20%
30%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014
OptionsPerformance Equity
∙ ∙ ∙ 69.3%
∙ ∙ ∙ 60.7%
Percentage of S&P 1500 Companies Granting Performance Equity Vs. Options9
E*TRADE Corporate Services Commentary
Institutional investor advisory companies appear to be playing a significant role in issuers’ decisions to add
performance equity grants to their compensation strategies, especially in the more senior ranks of the company. This
pay for performance push is having an impact on public companies that now regularly include performance awards
in the compensation mix granted to employees, sometimes making performance equity the only non-cash long-term
incentive for executives within those firms.
2015 Equity Trends Report | 14
15. Performance Equity (continued)
DATA POINTS
• The industrial goods sector saw
the largest percentage gain in
companies offering performance
equity in 2014, reaching 73.6%, up
from 69.5% in 2013 (Fig. 10)
• The technology sector showed the
lowest percentage of companies
offering performance equity at
61.4% in 2014, though that figure
was up from 42.6% in 2010
(Fig. 10)
• The financial sector saw the
biggest gain during the study
period, with the percentage of
companies granting performance
equity awards increasing from
41.2% in 2010 to 68.6% in 2014
(Fig. 10)
0% 20% 40% 60% 80% 100%
2010 2012 2013 20142011
Basic Materials
Consumer Goods
Financial
Healthcare
Industrial Goods
Services
Technology
Utilities
S&P 1500
∙ ∙ ∙ 69.3%
∙ ∙ ∙ 78.9%
∙ ∙ ∙ 69.2%
∙ ∙ ∙ 68.6%
∙ ∙ ∙ 63.0%
∙ ∙ ∙ 73.6%
∙ ∙ ∙ 68.0%
∙ ∙ ∙ 61.4%
∙ ∙ ∙ 93.3%
Prevalence of Companies Granting Performance Equity by Sector10 Across industry sectors the prevalence
of performance equity grants has
steadily increased over the past five
years, but has plateaued. For example,
utility companies have historically
granted the most performance equity,
and by far continue to lead the pack
with 93.3% of utilities companies in
the S&P 1500 granting such awards
in 2014. That figure, however, dipped
slightly from 95.2% in 2013. The
largest drop in prevalence occurred
in the healthcare sector, where the
percentage of S&P 1500 healthcare
companies granting performance
equity decreased from 69.4% last year
to 63.0% in 2014.
2015 Equity Trends Report | 15
16. Performance Equity (continued)
The overall rise in performance equity
has introduced a variety of equity plan
structures, composed of stock, units
and options, and divided into long-
term incentive plans (with performance
periods of multiple years) and short-
term incentive plans (with performance
periods of one year or less). Long-
term performance awards comprised
the vast majority of performance
awards granted to named executive
officers (NEOs) among S&P 1500
companies in 2014, totaling 79.2% of
all performance equity plans.
DATA POINTS
• For both long-term and short-term
incentive plans, the most common
vehicle was units, comprising of
63.8% of all performance-related
grants (Fig. 11)
• Long-term incentive plans
awarded in units were by far the
most common individual plan
type, comprising 49.9% of all
plans (Fig. 11)
• Consistent with the overall
decrease in options awards, long-
term option performance equity
plans totaled just 1.1% of all plan
types, and short-term option plans
only 0.6% (Fig. 11)
STIP Stock STIP OptionsSTIP Units
LTIP Stock LTIP OptionsLTIP Units
50%
28%
1%
1%
6%
14%
Performance Equity by Vehicle and Plan Type11
E*TRADE Corporate Services Commentary
Comparing the data below by equity vehicle, we see that RS/RSUs
comprise 98% of the performance equity granted while options only
comprise 2%. This correlates with the general trends discussed regarding
the increase in RS/RSUs granted.
Other factors may also come into play when looking at the mix of RS/RSU
grants used for performance equity plans versus options. Time-based
options have an intrinsic market-driven performance factor directly tied to an
increasing stock price. Because a time-based option’s intrinsic value is tied
to the appreciation of the underlying security, it may be redundant to add
performance conditions upon its vesting.
2015 Equity Trends Report | 16
17. Given the increased popularity of
performance-based equity grants,
companies are left with the task of
determining how they will choose
to measure the performance of
their executives. The most prevalent
performance metric among companies
in the S&P 1500 was relative total
shareholder return (TSR), with 47.8%
of companies utilizing this metric in
2014. Relative TSR was also the most
prevalent metric within each individual
sector. Overall, earnings per share
(EPS) and company revenue were
the next most popular metrics at an
index level, showing 25.3% and 22.1%
prevalence, respectively, across the
S&P 1500 as a whole.
DATA POINTS
• Utilities companies showed the
greatest predilection as a sector
for relative TSR, with 93.0%
of companies in that industry
granting performance equity
packages based on that metric
(Fig. 12)
• Nearly 44% of technology
companies offered performance
equity plans based on revenue in
2014, a higher percentage than
any other sector (Fig. 12)
• Healthcare companies led all
sectors in terms of performance
equity plans based on EPS, with
37.3% of companies in that
industry doing so (Fig. 12)
Performance Equity (continued)
Most Prevalent Metrics Determining Performance Equity by Sector12
Sector Metric Prevalence
S&P1500 Relative TSR 47.8%
EPS 25.3%
Revenue 22.1%
Basic Materials Relative TSR 68.1%
ROC / ROIC 33.6%
Cash Flow 10.6%
EBITDA 10.6%
Consumer Goods Relative TSR 38.0%
EPS 32.4%
Revenue 31.5%
Financial Relative TSR 50.0%
ROE 28.4%
EPS 25.3%
Healthcare Relative TSR 48.0%
EPS 37.3%
Revenue 30.7%
Industrial Goods Relative TSR 45.3%
ROC / ROIC 27.4%
EPS 25.5%
Services Relative TSR 30.5%
EPS 28.6%
Operating Income / Margin 27.7%
Technology Relative TSR 45.9%
Revenue 43.9%
Operating Income / Margin 27.7%
Utilities Relative TSR 93.0%
EPS 33.3%
Net Income 14.0%
ROE 14.0%
E*TRADE Corporate Services Commentary
The inclusion of secondary metrics into the performance metric calculation
seems to be more closely tied to the desire to fairly compensate executives
for the broad influence they have over the company. Beyond total shareholder
return, companies are looking at other areas that are key to mid- and long-term
value creation. These areas can be easily measured, the influence executives
have on the measurement is clear, and over time they are a reasonable measure
of the impact an executive has had on the company’s value.
Ultimately these plans, just like broad-based equity plans, are designed to attract
and retain top talent. Creating a performance metric that can be driven by the
employee and also tie to the goals and values of the company is more likely to
motivate and attract talent than simply tying the performance equity to TSR.
2015 Equity Trends Report | 17
19. Time-Based Equity Vesting
As an alternative to performance-based equity,
companies also offer time-based equity vesting as
a means of retention and compensation. A majority of
time-based equity vesting schedules among S&P 1500
companies were offered in the form of stock in 2014,
totaling 58.9%, vs. 41.1% for options-based vesting
schedules. Graded vesting schedules comprised the
majority of all equity vesting schedules chosen in 2014 –
including 92.1% of all options schedules – which is tied
to the concept that a segmented structure encourages
executives to stay at the company instead of leaving money
on the table if they choose to pursue other opportunities.
Among equity vesting periods offered by S&P 1500
companies in 2014, the lion’s share of equity rewards were
scheduled to vest in a 3- to 4-year window, regardless of
the vesting schedule, and there is a high occurrence of
cliff-vesting awards to be completed within a 3-year period.
Preference for 3- or 4-year vesting periods for graded
options and stock appreciation rights was also equally split
among S&P 1500 companies for the most recent year.
Overall, stock with graded vesting schedules has
increased in popularity among S&P 1500 companies,
increasing 26.4% from last year. As such, graded stock
vesting schedules were the most prevalent, with 40.7% of
schedules among S&P 1500 companies being offered in
that form.
Stock
Awards
58.9%
Option
Awards
41.1%
Cliff
30.9%
Graded
69.1%
Cliff
7.9%
Graded
92.1%
..
.
Equity Vesting Schedules13
2015 Equity Trends Report | 19
20. On a sector-by-sector basis, however,
vesting schedules varied significantly.
For example, S&P 1500 companies in
the financial and technology sectors
exhibited the highest proportion
of graded stock awards in 2014.
Just over 55% of all equity vesting
schedules among financial companies
came via graded stock awards in 2014,
and 54.0% of all such schedules in
the technology sector were based on
graded stock. Indeed, these were the
highest proportions of any vesting
schedule across all sectors, and the
only ones to command a majority.
DATA POINTS
• Utilities companies by far showed
the greatest instances of cliff stock
vesting schedules based on units,
with 49.6% of schedules in that
sector falling into that category.
Conversely, only 8.3% of vesting
schedules in the technology sector
occurred in this form (Fig. 14)
• Healthcare companies had the
highest percentage of graded
option/SARs as part of vesting
schedules at 49.2% in contrast to
the utilities sector, which had the
lowest percentage at 17.3%
(Fig. 14)
• Overall, cliff option/SARs schedules
were the least prevalent among
nearly every sector individually,
with the highest coming from the
consumer goods sector at 8.3%
(Fig. 14)
0% 20% 40% 60% 80% 100%
Basic Materials
Consumer Goods
Financial
Healthcare
Industrial Goods
Services
Technology
Utilities
S&P 1500
Graded Cliff / Units Cliff Options / SARs Graded Options / SARsGraded Stock / Units
25.3% 35.4% 35.3% ···4.1%
26% 27.6% ···8.3%38.2%
14.4% 55.1% 28.7% ···1.8%
13.4% 35% 49.2% ···2.3%
24.5% 29.1% 43.3% ···3%
16.5% 39.1% ···3.5%40.9%
8.3% 54% ···1.2%36.5%
49.6% 31.2% ···1.9%49.6%
18.2% 40.7% ···3.2%37.9%
Equity Vesting Schedules by Sector14
Time-Based Equity Vesting (continued)
E*TRADE Corporate Services Commentary
Technology and Financial sector companies have seen a shift in the age and
motivation of the talent they are trying to attract and retain. Younger employees
value “belonging to an organization that is doing good” but have a desire for
more immediate rewards1
. E*TRADE Corporate Services’ participant research
has indicated that many of the employees in this new generation don’t have
long-term plans and as a result tend to value more frequent vesting periods and
vesting periods that are shorter in overall duration.
Companies trying to attract and retain these employees have shortened vesting
periods even if it means making more frequent and smaller grants to align
the company’s compensation and retention strategies. As the talent market
continues to shift, it is reasonable to expect this trend to continue.
As with every trend, this will likely ebb and flow until the right equilibrium is
found.
• If issuers elongate the vesting periods, make the grant too small, or extend
the final vest date out too far, then the grant may lose its appeal.
• If, however, issuers make the vesting period too short or stack too much
value in a short vesting window, then the result could be the employee
taking enough of the value to feel rewarded and then moving on to the
next employer.
2015 Equity Trends Report | 20
22. Dilution
E*TRADE Corporate Services Commentary
Depending on the company and situation, several actions are available to help minimize dilution and are appealing in
different ways. Offering a consistent value to your employees while minimizing the amount of shares that are granted is
a balance. As noted above, this can be accomplished by granting fewer options and shifting to a more RS/RSU-based
equity strategy. This allows grants of the same dollar value to be granted with fewer shares comprising the award.
Other methods, which admittedly have other potentially negative impacts to consider, include:
• reducing the number of people who receive grants
• reducing the amount of shares in each grant
• leveraging share withholding to collect funds due by the participant upon transaction
• shifting to cash settled instruments
Dilution directly impacts shareholder wealth, and
therefore receives a great deal of scrutiny from the
investor community. The final section of this report looks
at dilution measured in terms of overhang, run rate
and evergreen provisions in the past five years among
companies in the S&P 1500.
Total overhang, a measure of potential dilution defined as
the ratio of equity grant shares outstanding to total common
shares outstanding, has continued to decrease among S&P
1500 companies over the past five years. In 2014, median
overhang among sample companies fell to 3.8% from 4.3%
in 2013, and was down from 5.9% in 2010. (Fig. 15) The
decline in total overhang over the past five years parallels
the decline in option overhang, while overhang from stock is
up marginally as grants of full-value shares continue to rise.
In 2014, median overhang from options among companies
in the S&P 1500 was 2.1%, down from 2.8% in 2013 and
from 4.5% in 2010. (Fig. 17, on following page) Meanwhile,
median overhang from stock has remained flat at 1.1%
since 2011 when rounded, increasing by hundredths of
percentage points each year. (Fig. 16 on following page)
0%
2%
4%
6%
8%
10%
2010 2011 2012 2013 2014
25th Percentile 75th Percentile50th Percentile
∙ ∙ ∙ 6.0%
∙ ∙ ∙ 3.8%
∙ ∙ ∙ 2.0%
Total Overhang Among S&P 1500 Companies15
2015 Equity Trends Report | 22
24. Run rate is an important calculation
in the measurement and evaluation
of equity plan dilution, defined as
the sum of options assumed and new
equity shares granted divided by
the total number of common shares
outstanding. In the last five years,
median run rate has remained stable
despite equity mix changes, increasing
from 1.4% in 2010 to 1.6% in 2014,
but flat overall since 2012.
“Evergreen” provisions, so named
because they provide for automatic
replenishment of the number of
shares available for issuance pursuant
to equity compensation plans, have
declined steadily over the last five
years. Because automatic allotment
of shares by nature does not require
explicit shareholder approval,
such provisions are often seen as
a potential source of undesirable
dilution. As a result, such provisions
are often either replaced through
amendments or left out of new plans.
The share of companies utilizing
equity compensation plans with
evergreen provisions fell from 7.4% in
2010 to 4.6% in 2014.
Dilution (continued)
0.%0
0.5%
1.0%
1.5%
2.0%
2.5%
30%
2010 2011 2012 2013 2014
25th Percentile 75th Percentile50th Percentile
∙ ∙ ∙ 2.8%
∙ ∙ ∙ 1.6%
∙ ∙ ∙ 1.0%
0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2010 2011 2012 2013 2014
2010 2012 2013 20142011
.
.
.
.
5.8%
.
.
.
.
6 4%7.4%
.
.
.
.
5.0%
.
.
.
.
4.6%
Run Rate Among S&P 1500 Companies18
Prevalence of Evergreen Provisions Among S&P 1500 Companies19
E*TRADE Corporate Services Commentary
Run rate is an important metric to consider when analyzing dilution. However, it is susceptible to other factors that cause
it to remain flat or even increase at the same time dilution is decreasing. One important factor that may explain why run
rates have remained flat in light of the equity mix changes to granting more RS/RSUs is due to the calculation. When
calculating run rate, RS/RSUs may have a conversion premium based on the company’s volatility applied to them. This
makes the numerator in the calculation larger than one might anticipate, even if fewer shares are being granted. Other
factors outside of equity compensation grants can also affect this. For example, companies that are actively trying to
reduce dilution may institute a share buyback program. This reduces the amount of common shares outstanding and
makes the denominator in the calculation smaller, resulting in a higher run rate in an environment of lower dilution.
Evergreen provisions may continue to decline due to the prevalence of “say on pay” initiatives and the intense focus of
institutional investors on all aspects of public company equity compensation programs.
2015 Equity Trends Report | 24
29. About E*TRADE Corporate Services
E*TRADE Financial Corporate Services, Inc. is a premier provider of equity compensation management tools for many
top companies, including over 20 percent of the S&P 5002
. We offer flexible, easy-to-use and powerful solutions for
complete equity compensation management, including support for most equity vehicles, and seamless access to stock
plan participant services and education from E*TRADE Securities.
For four years running, E*TRADE’s proprietary Equity Edge Online®
platform has been rated #1 in loyalty and overall
satisfaction by Group Five, LLC3
.
PLEASE READ THE IMPORTANT DISCLOSURES BELOW.
1. Results are from the 2015 Stock Plan Participant Survey conducted by E*TRADE Securities LLC in February 2015.
2. Data as of 2/23/15.
3. As of June 30, 2015, Equity Edge Online®
was rated highest in Loyalty and Overall Satisfaction in the 2012, 2013,
2014 and 2015 Stock Plan Administration Benchmark Study and Financial Reporting Benchmark Study. Group Five,
LLC is not affiliated with E*TRADE Financial Corporate Services, Inc. or the E*TRADE Financial family of companies.
The data and analysis contained in this publication has been prepared by Equilar. The commentary, where noted, has
been provided by E*TRADE Financial Corporate Services, Inc.
Equilar is not affiliated with E*TRADE Financial Corporate Services, Inc. or the E*TRADE Financial Family of companies.
Employee stock plan solutions are offered by E*TRADE Financial Corporate Services, Inc.
Securities products and services are offered by E*TRADE Securities LLC, Member FINRA / SIPC.
In connection with the stock plan solutions it offers, E*TRADE Financial Corporate Services, Inc. utilizes the services of
E*TRADE Securities LLC to administer stock plan participant brokerage accounts.
E*TRADE Securities LLC and E*TRADE Financial Corporate Services, Inc. are separate but affiliated companies.
The laws, regulations and rulings addressed by the products, services, and publications offered by E*TRADE Financial
Corporate Services, Inc. and its affiliates are subject to various interpretations and frequent change. E*TRADE Financial
Corporate Services, Inc. and its affiliates do not warrant these products, services and publications against different
interpretations or subsequent changes of laws, regulations and rulings. E*TRADE Financial Corporate Services, Inc. and
its affiliates do not provide legal accounting or tax advice. Always consult your own legal, accounting and tax advisors.
Report Partner
2015 Equity Trends Report | 29
