Design Features that Drive the Fair Value of a Relative Total Shareholder Return Award

Relative total shareholder return (rTSR) awards serve multiple purposes and constituencies. They create line of sight to senior executives, can span long time horizons, and are broadly accepted by governance agencies. However, unlike plain-vanilla stock options, rTSR awards can have potentially thousands of input assumptions, all of which interact in potentially nonintuitive ways.

Now in its second edition, this issue brief discusses the key design features that drive the fair value of an rTSR award. Armed with these insights, human resources and accounting executives can plan better and avoid the surprises that this substantially more complex awards structure can generate.

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