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In this Client Briefing, Exequity explores the usage of relative total shareholder return (RTSR) within long-term incentive plans across S&P 500 companies. We examine overall prevalence of RTSR, differences in usage between industry sectors, and key design elements of these plans.
Key findings:
Click here to download the Client Briefing in PDF. Seemingly overnight, the COVID-19 pandemic gripped the World, and many business forecasts and operating budgets were severely impacted. Before the end of the first quarter, incentive plan performance goals were suddenly deemed unattainable. While most companies are not currently considering adjusting in-cycle incentive plan performance goals, due either to concerns about external optics or a lack of sufficient context, assessing performance for the purposes of incentive plan payouts will be a deeply deliberated topic during year-end pay discussions. We expect that for many companies, incentive plan performance assessment is likely to include the application of backward-looking discretion, informed by a comprehensive review of a variety of quantitative and qualitative factors. This article provides an analytical approach to support the application of discretion.
Click here to download the Client Briefing in PDF The economic fallout resulting from the COVID-19 pandemic has rendered obsolete many executive incentive plans, and compensation committees are expected to apply significantly more discretion for 2020 than is typical. This Client Briefing provides a framework for the use of discretion in incentive plans. A logical framework may help companies avoid arbitrary and confusing outcomes.
Click here to download this Client Briefing in PDF. While it is safe to say every economic crisis is different, it does not seem fair to compare this crisis to any other. The global impact of the COVID-19 pandemic is unprecedented in modern times. In turn, companies are responding with unprecedented actions. This Client Alert describes how the repercussions of COVID-19 are impacting pay programs, based on data gathered from public filings as of April 1, 2020. We will continue to update this data throughout the pandemic as companies respond, at https://www.exqty.com/newsroom/covid-19-impact-on-pay-summary-statistics.
Click here to download this Client Alert in PDF In this Client Update, we suggest that compensation committees and boards should have confidence in using their business judgment to identify key measures for evaluating company performance in incentive plans. Using reported earnings measures highlighted by Amazon.com, Inc., we provide a demonstration of how financial performance can be very closely tied to shareholder value creation over time. We also compare EVA (ISS’s latest preferred approach) to stock price over this same period. We find using Amazon’s reported financial performance to be a very strong gauge of shareholder value creation. If the Amazon example is any indication, compensation committees should feel comfortable in applying their own business judgment, rather than feeling the need to turn to ISS’s one-size-fits-all notion that EVA presides over all. 
Ben Burney spoke to the Chicago chapter of NASPP about trends in relative TSR. Topics covered include overall prevalence and peer group usage, among other topics. The presentation also included summary results of a Monte Carlo simulation of the S&P 500. The graphic depicts how companies in some sectors may be expected to outperform or underperform depending on market conditions.
Download the presentation here. In this Client Briefing, Exequity explores the usage of relative total shareholder return (RTSR) within long-term incentive plans across S&P 500 companies using data from 2019 filings. We examine overall prevalence of RTSR, differences in usage between industry sectors, and key design elements of these plans.
Click here to download the Client Briefing. Institutional Shareholder Services (ISS) recently introduced Economic Value Added (EVA) as its latest approach to measuring company performance. Now a purveyor and proponent of EVA, ISS is marketing its product, including a recent publication, EVA, not EBITDA: A Better Measure of Investment Value. This Client Briefing examines ISS’s contention that EVA is a superior gauge of “investment value” to EBITDA.
Download the Client Briefing here (PDF). Download information on the EVA formula we used and companies analyzed here (PDF). When you hear the words “Monte Carlo simulation,” do you:
a) Scream; b) Pack your suitcase—Mediterranean vacation! (Simulation? Nah!); or c) Ponder the link between 19th century botany and modern valuation techniques? If you chose a) and would rather b), read this Client Briefing to c). Monte Carlo simulations are often only marginally understood by decision makers—and trying to comprehend them makes some want to scream. But while Monte Carlo simulations are complicated, the way we explain them does not have to be. This Client Briefing offers a plain-English guide to Monte Carlo simulations, which are used to value market-based performance awards (e.g., relative TSR). The goal is to help companies understand the implications of design choices on valuation outcomes in a conversational manner. Click here to download the Client Briefing (PDF). GOP Tax Proposal Eviscerates Current Executive Compensation Designs and Practices—Perhaps?11/10/2017
On November 2, 2017, the House Ways and Means Committee released the GOP's Tax Proposal, also known as the Tax Cuts and Jobs Act and the potential harbinger of death for many current executive compensation programs. The Tax Proposal has already been amended by the Chairman of the House of Representatives' Ways and Means Committee, and is likely to undergo further changes as it winds its way through Congress. Also, the Senate released a summary of its plan late on November 9 and reconciliation between the House and Senate bills will need to occur. President Trump wants this signed into law by Christmas, so there is a lot to be done in a very short period of time. Thus, there could be many changes between now and then, including the possibility of no bill.
This Client Alert details the "worst-case scenario" key provisions that impact executive compensation directly and also discusses the immediate issues companies need to think through so they at least have some chance to take action before December 31, 2017 if they want to try and address some of the potential issues that this Tax Proposal would raise if it makes it into law in its current form before the end of the year. Download Client Alert (PDF) Exequity's Ben Burney presented the findings of Exequity's recent study of relative TSR programs to the Chicago Chapter of The National Association of Stock Plan Professionals. The research was originally published by Exequity in a October 2017 Client Briefing.
Download Slides from Presentation to NASPP Chicago Chapter (PDF) In this Client Briefing, Exequity explores the usage of relative total shareholder return (RTSR) within long-term incentive plans across S&P 500 companies using data from 2017 filings. We examine overall prevalence of RTSR, differences in usage between industry sectors, and key design elements of these plans.
Download Client Briefing (PDF) In this Client Briefing, Exequity explores the usage of relative total shareholder return (RTSR) within long-term incentive plans across S&P 500 companies using data from 2016 filings. We examine overall prevalence of RTSR, differences in usage between industry sectors, and key design elements of these plans.
Download Client Briefing (PDF) Exequity's Ben Burney presented the findings of Exequity's recent study of relative total shareholder return programs to the Chicago chapter of The National Association of Stock Plan Professionals. The research was originally published by Exequity in a Client Briefing.
Download Slides from Presentation to NASPP Chicago Chapter (PDF) In this Client Briefing, Exequity explores the usage of relative total shareholder return (RTSR) within long-term incentive plans across S&P 500 companies. We examine overall prevalence of RTSR, differences in usage between industry sectors, and key design elements of these plans.
Download Client Briefing (PDF) On October 16, 2014 from 7 to 9 am Pacific, Chad Mitchell of Exequity LLP will participate in the panel discussion, Long-Term Incentive Compensation: Driving Performance and Testing for Alignment, In Orange County and Beyond, at the 5th Annual Executive Compensation Summit put on by the Forum for Corporate Directors.
As an update to our Quick-Take Study, Long-Term Incentive Trends: 2010 Vs. 2009 CEO Long-Term Incentive Opportunity, released in March, Exequity included CEO LTI awards from 2008 to identify trends in LTI opportunity over the last three years. Overall, we found that 2010 CEO LTI award levels have essentially returned to 2008 levels. At the median, total LTI value decreased slightly (-2%) from 2008 to 2010 relative to an equal decrease (-2%) in grant price. This study presents additional key findings, including LTI opportunity percent change by industry from 2008 to 2010, an updated 2009 vs. 2010 CEO LTI analysis by stock price change which includes companies granting LTI awards in March and April, and an updated in-the-money option analysis for 2008 and 2009 stock option awards.
Download Study (PDF) After a general industry decline in long-term incentive (LTI) opportunity from 2008 to 2009, Exequity analyzed insider filings (Form 4) for the CEOs from Fortune 500 companies to gauge the percent change in LTI opportunity from 2009 to 2010. Overall, our study found that median LTI opportunity increased 8% relative to a 36% stock price increase over the prior year.
This Study presents the key findings from the analysis, including percent change in LTI opportunity relative to three stock price categories (greater than 60% increase, less than 60% increase and greater than 20% increase, and less than 20% increase), percent change in LTI opportunity by industry, and an in-the-money option analysis for 2009 stock option awards. Download Study (PDF) This Quick-Take Survey on 2009 Long-Term Incentive Grant Practices summarizes the responses Exequity received during a one week period, from January 27, 2009 through February 3, 2009. The Survey finds that 2009 LTI grant values are likely to decline more than 10% overall, with companies that actually change their grant values doing so by decreasing their grant values by more than 20% at median. That being said, a number of companies had not yet secured Compensation Committee/Board approval for their 2009 equity grants, and those companies were anticipating a decrease of more than 30% at median. So the continuing trend is likely to be downward.
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