Build employee buy-in and literacy in your company’s equity compensation program.
Businesses take great care to sort through award design options, model different scenarios, align with shareholder expectations, and bring the cost of their equity compensation programs to an affordable level. But if recipients don’t understand the program, it can fail to meet its goals for motivation, retention, and performance.
Performance-based equity awards amplify this risk. Relative total shareholder return (rTSR) awards, for example, have hundreds of moving parts. These can trigger confusion and skepticism with participants—especially if they believe the metric is beyond their line of sight.
In response, boards are challenging compensation professionals to provide communications for equity compensation that provide clear, timely information 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.
How We Help: Participant Communication
We support grant rollout by helping recipients understand what they just received, appreciate the value, and know the behaviors and tactics that drive award payout. For example, we assist in the design and rollout of brochures, explainer videos, and other communication vehicles. Although the right mix varies from company to company, the goal is the same: for participants to thoroughly understand the awards they’ve been granted.
Post-Grant Top-of-Mind Strategy
We help you sustain the momentum with outbound and on-demand information that keeps the award program top of mind for busy executives. Solutions differ by company, but can include quarterly participant statements; hardcopy mailings; access to AwardTraq, our web-based portal; payout scenario modeling; town hall presentation development; and total rewards statements.
We work with you to develop upfront communication with all stakeholders to avoid surprises once formal grant takes place. We also provide analytics and context that explain the drivers of award costs and ways to manage costs so that you can grant more equity. Finally, we help compensation consultants and compensation committees understand the risks for cost surprises, as well as how this can translate into depressed grant quantities.
How We Help: TSR Tracking
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