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05/17/2017

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As you may guess, I love this topic.

LTI programs, especially those denominated in company stock, ae used improperly far more than they are used properly. Like so many things, the key is in education and understanding. The key to that is frequent and consistent communications through the lifecycle of these programs.

Executives need to understand:
1) Why they get equity (and not something else).
2) Why they get a specific type of equity
3) Why the features of the grant are crafted as they are
4) Why this form of compensation is good for them, the company and its shareholders
5) How and when to best take advantage of the real and potential value of equity. Tax planning, income planning, etc...
6) What the realistic expectations of potential value should be
7) What is happening with the company stock price, and why (and where they do, or do not, fit into that equation at any given moment.

Most companies very little of the above (many companies do NONE of the above.) Even those who put some effort into it, seldom put the effort into the entire life of the award. It's kind of like cheering someone on for the first two miles of a marathon then disappearing until the last 100 yards of the race.

And, part of the purpose of equity and similar LTI programs is to combat the real-time, human nature-oriented, selfishness that is found in most people. Equity is NOT just for the benefit of the executive and should not be expected to be loved as much as cash in all circumstances. It should make people think, and act, differently. Many company simply check the box and move on. Many companies look at survey or proxy data for values and simply grant something similar, without understanding the "why" of the other companies programs.

Equity ain't easy. Equity compensation is complex, volatile, exciting and confusing. It is like the difference between a weekly sitcom and a great oscar award-winning movie. The latter usually requires more commitment, time and thought, but the impact is generally far greater and deeper.

This is an interesting study, but LTI programs are used to mitigate risk. A company would not want their executives solely focused on short-term incentives.

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