Compensation Analytics & Design Modeling

TSR Award Pre-Grant Modeling, Valuation, and Post-Grant Tracking

Relative TSR (total shareholder return) awards are becoming more prominent. According to our own survey, over 50% of companies are granting relative TSR. That proportion will likely get bigger given proxy advisory firms’ voting frameworks and the SEC’s new pay for performance rules.

But with hundreds of moving parts underlying these awards, there’s a risk of confusing participants, depressing award quantities, or inflating pay-for-performance proxy disclosures. In response, boards are challenging compensation professionals to provide better information, faster, about the implications of proposed awards under different scenarios. They’re equally adamant that management keep participants engaged and informed throughout the life of the award.

Services

Equity Methods provides powerful and relevant modeling during all four stages of a TSR award’s lifecycle:

  • Present a menu of award design alternatives for a given general award framework by adjusting design “levers” and showing how costs change across each potential alternative
  • Track the flow-through impact of each design scenario to participant grant quantities and proxy cost disclosures
  • Identify the provisions (levers) that drive cost and affect payout outcomes, including attribution analyses of the relative impact of each lever
  • Back-test the cost and payouts of alternative design scenarios to a paint a picture of how the award would have fared had it been issued over the past 5 to 10 years
  • Suggest minor reformulations of the award that preserve the core incentives but allow more awards to be granted or avoid other problematic accounting outcomes
  • Model alternative award designs for hybrid awards containing both a market and performance condition
  • Identify accounting policy and cost risks, and present different design possibilities to manage these risks
  • Anticipate events that could lead to positive or negative changes in cost, especially during the highly sensitive period leading up to the grant date
  • Help manage the risk of value changes after the performance start but prior to the grant
  • Develop recommendations, considerations, and next steps for implementation of your grant design
  • Calculate updated current performance status for ASC 260 earnings per share (EPS) calculations
  • Provide real-time access to current payout multipliers to assist in ongoing participant communications

Deliver credible, actionable information to your compensation committee and senior management while managing expectations among all stakeholders.