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Global Equity Insights Survey 2017 – Results
Danyle Anderson, Executive Director, Global Equity OrganizationTravis Carpico, Head of Stock Plan Global Services, Fidelity Stock Plan Services
Michael H. Kramarsch, Managing Partner, hkp/// groupMarc Muntermann, Head of Global Share Programs, Siemens
Mitan Patel, Global Sales & Marketing Director, EquatexSandra Sussman, Global Equity Compensation Expert, SAP
Prof. Michael Wolff, Head of the Chair of Management and Control, University of Göttingen
Global Equity Insights Study –a success story for market intelligence since 2013• The Global Equity Insights 2017 survey is the fifth edition in a row:
Global Equity InsightsYear 2013 2014 2015 2016 2017
Topics
Questions 204 117 34 50 71
Participants 133 169 144 148 163
LTIP
ESPP
SOG
Equity Admin
LTIP
ESPP
SOG
Equity Admin
LTIP
Broad-based LTIP
LTIP
Equity Admin
LTIP
SPP
Admin & Communication
LTIP as well as SPP are correlated to company performance
26
30
Low performing companies
High performing companies
LTIP-eligible staff(in % of all employees)
65
55
High performing companies
Low performing companies
SPP participation rate(in % of companies)
High performing companies make more of their employees LTIP eligible than low performing companies.
High performing companies have higher SPP participation rates than low performing companies.
Considering the clear evidence for a performance fostering effect of LTIP and SPP the question is why there are still significant (regional) differences
in the application of LTIP and SPP and how obstacles may be solved.
Long-Term Incentive Plans (LTIP)
North American companies are still at the forefront of LTIP grants
• Employees of North American companies receive a higher portion of long-term incentives than employees of European companies on all levels of the corporate hierarchy.
• Across all economic regions, the LTIP portion decreases with corporate hierarchy, ranging from 39% for the management board to 12% for (key) employees.
36
36
30
50
26
31
21
26
39
33
49
24
Total
Europe
North America
Rest of World
Paymix for the management board/ executive committee
(in % of total direct compensation)
Base salary STI LTI
Do you see the gap between North America and Europe closing in the next few years??
LTIP portion (paymix)
Regional differences in the use of plan types• European companies prefer performance shares as a long-term incentive,
while North American companies prefer restricted stock (units).• Other plan types such as share matching, discount plans and equity or cash
deferrals only play a minor role in the compensation mix.
3129
15
2
7
4 5
2 1 2
26
33
6
0
15
6 8
4
1 0
34
27
19
35
3 42 2 2
27 27
18
6
0
6
9
0 0
6
Restrictedstock (units)
Performanceshares
Stock options Stockappreciation
rights
Performancecash
Equity deferral Cashdeferral
Sharematching
Discount Other
LTIP plan types(in %)
Total
Europe
NorthAmericaRest ofWorld
LTIP types
Which LTIP type do you currently use??
If you had to design a completely new LTIP, which type would you choose and why? ?
Ratable vesting is most prevalent inNorth American companies
• Even though cliff vesting and ratable vesting are both common market practice, there are some regional differences.
• North American companies tend to use more ratable vesting, whereas European companies have a strong preference for cliff vesting.
44
43
13
68
19
13
30
55
14
64
36
0
Cliff Vesting
Ratable Vesting
Both
Vesting schedules(in % of companies)
Total Europe North America Rest of World
Why is cliff vesting preferred in Europe and why is ratable vesting preferred in North America?
?
LTIP vesting
The use of new or repurchased shares is common for equity settlement
• For LTIP payouts in equity, North American companies most frequently award new shares from capital increase (47%).
• In contrast, European companies seem averse to the associated dilution and rather initiate share repurchase programs to finance LTIP equity settlements (48%).
40
34
26
28
48
24
47
24
29
38
46
15
New shares from capitalincrease
Repurchased shares
Both
Share types for equity settlement(in % of companies)
Total Europe North America Rest of World
New shares from capital increase
Repurchased shares
Both
How do you explain the regional differences? (preference for new shares in North America vs. preference for repurchased shares in Europe)
?
LTIP settlement
Share usage/dilution is perceived asbiggest obstacle to LTIP implementation
6
4
5
2
15
13
20
31
23
22
18
31
27
23
25
34
34
40
32
32
30
22
24
25
30
12
21
23
16
15
14
10
9
8
4
Share usage/dilution
Shareholder concerns
Regulatory costs
Costs
IT implementation
Implementation process
Participant interest
Obstacles to LTIP implementation(in % of companies)
very low low moderate high very high
• Companies assess share usage/dilution as main obstacle to LTIP implement-tation.
• Other perceived issues are shareholder concerns and regulatory requirements.
• Fewer companies consider costs, IT implementation, the implementation process or (a lack of) participant interest as highobstacles.
Regulatory requirements
Based on your experience, what are the biggest obstacles and pitfalls in LTIP implementation?
?
LTIP obstacles
Europe has the highest number of employees dedicated to LTIP administration
• On average, companies employ 4.2 FTEs (full-time equivalents) for the administration of equity-based compensation plans.
• While North American companies as well as companies from other economic regions only employ around 3 FTEs on average, European companies employ 6.5 FTEs.
4.2
6.5
3.1
3.2
Total
Europe
North America
Rest of World
Average number of FTEs in administration
Can you confirm that European companies employ more staff for LTIP administration? And if so, why?
?
LTIP administration staff
Share Purchase Plans (SPP)
Share discount plans are the most prevalent SPP type
• Share discount plans are the dominant SPP type around the world. However, there are considerable regional differences.
• While North American companies predominately use share discount plans (63%), European companies prefer the use of matching plan types (45%) as well as share discount plans (48%).
26
6
51
3
15
40
5
48
3
5
10
5
63
2
20
38
13
0
13
38
Matching plan (in shares)
Matching plan (in cash)
Share discount plan
Free shares
Other
SPP types(in % of companies)
Total Europe North America Rest of World
SPP types
Why are matching plan types so much more common in Europe and the rest of the world than in North America?
?
If you had to design a completely new SPP, which type would you choose and why? ?
Companies seem to face challenges with actual SPP participation
• The actual participation rate in Europe is just below 40% and in North America less than 30%.
• The slightly higher participation rate outside Europe and North America (43%) may result from a more frequent use of free share plans.
34
39
28
43
Total
Europe
North America
Rest of World
SPP participation rate(in % of eligible participants)
Do you have any explanation why SPP participation rates are rather low??
Do you have any recommendations how to increase SPP participation??
SPP participation
Regulatory requirements and costs are the main obstacles to SPP implementation
• Regulatory requirements are particularly seen as an obstacle by European companies, with 38% of them considering these as a very high obstacle to SPP implementation.
• 21% of the European and North American companies also see costs as big obstacle.
5
3
14
16
12
13
28
12
13
16
16
26
42
32
28
43
33
34
22
29
28
27
20
28
25
33
11
8
28
20
10
9
7
5
4
Regulatory requirements
Costs
Implementation process
IT Implementation
Participation acceptance
Share usage/ dilution
Shareholder concerns
Obstacles to SPP implementation(in % of companies)
very low low moderate high very high
Based on your experience, what are the biggest obstacles and pitfalls in SPP implementation?
?
SPP obstacles
Find out more in our upcoming webinars
Global Equity Insights 2017 – LTIP
Global Equity Insights 2017 – SPP
Upcoming Webinars
Dates will be announced soon
Thank YouDanyle Anderson
Global Equity [email protected]
Travis CarpicoFidelity Stock Plan Services
Michael H. Kramarschhkp/// group
Prof. Michael WolffUniversity of Gö[email protected]
goettingen.de
Sandra SussmanSAP
Mitan PatelEquatex
Marc MuntermannSiemens
Thank you for attending GEO’s 18th Annual Conference in Rome. We hope you enjoyed this session.
If you require CPE Credit, don’t forget to sign out.
Two ways to give us your feedback on this session:
• Mobile app• Paper surveys available at the door
Thank You
Appendix
Survey participants 2017163 companies including the largest global corporations
National leading companies from 17 countries around the world
90% with a market capitalization above USD 1 billion at year-end 2016 (the top 8% exceeding USD 100 billion)
60% of the companies generated revenues above USD 5 billion in 2016
Representative sample across 10 industries
Special focus on North America (51%) and Europe (34%)
Survey sponsorsPremium SponsorsPremium sponsors Sponsor
Survey content• The 2017 Global Equity Insights survey focuses on different aspects of
long-term incentive plans (LTIP) and share purchase plans (SPP) as well as selected aspects of administration and communication.
LTIP SPP
1. Objectives & eligibility2. Pay mix & country coverage3. Types & performance measures4. Vesting & settlement5. Administration & success
1. Implementation & participation2. Types & design
Administration & Communication
Long-term incentive plansObjectives & eligibility
‘Retention’ ranked as most important LTIP objective• There are several objectives
which can be pursued with the implementation of LTIP.
• Almost half of the surveyed companies regard retention as the most important objective for LTIP implementation.
• However, companies also give high priority to motivation and competitive pay as LTIP objectives.
48
39
33
30
28
27
25
24
18
18
Retention
Motivation
Competitive pay
Identification
Best market practice
Share ownership
Strategy
Engagement
Profit sharing
Compliance
LTIP objectives ranked "very high"(in % of companies)
LTIP eligibility is most frequently determined by career level
• Across all economic regions, companies apply similar criteria for determining LTIP eligibility.
• The most important criteria are career level, management discretion, criticality of retention, and performance rating.
79
59
56
48
29
29
25
14
Career level
Management discretion
Criticality of retention
Performance rating
Skill-set
Career event
Hiring
Other
Criteria for LTIP eligibility(in % of companies)
The portion of LTIP-eligible staff differs by region
• The majority of companies makes only less than 25% of their employees LTIP-eligible; however, there are strong regional differences.
• 32% of North American compa-nies have more than 75% of their employees LTIP eligible.
• The number drops to 6% for European companies with 86% of them having less than 25% of their employees eligible.
82
18
0
0
59
9
0
32
86
6
2
6
73
9
1
17
<25%
25-50%
51-75%
>75%
Portion of LTIP-eligible staff(in % of companies)
Total Europe North America Rest of World
Long-term incentive plansPay mix & country coverage
High performing companies grant higher LTIP portions on top levels
• At all higher management levels, high performing companies grant a larger portion in the form of long-term incentives than low performing companies.
• The difference in the compensation structure is most pronounced at the top of corporate hierarchy.36
33
26
23
38
45
Low performing companies
High performing companies
Pay mix for the management board(in % of total direct compensation)
Base salary STI LTI
LTIP country coverage differs considerably across companies
• 39% of companies roll out LTIP in most of their operating countries.
• Around three-fourth roll out LTIP in more than 40% of operating countries.
• 29% implement LTIP in only selected countries.
16
21
5
53
13
17
12
7
19
13
25
7
13
15
13
7
39
35
45
27
Total
Europe
North America
Rest of World
LTIP country coverage(out of all operating countries in %)
<20% 20-39% 40-59% 60-79% >80%
LTIP grant guidelines are often consistent across all operating countries
• 64% of the companies apply the same LTIP grant guidelines in all of their operating countries.
• European companies show a stronger preference for consistent grant guidelines than companies from North America and the rest of the world.
64
36
81
19
58
42
36
64
Same LTIPguidelines in all
operating countries
Country-specificLTIP guidelines
Consistency of LTIP grant guidelines
(in % of companies)
Total Europe North America Rest of World
Same LTIP guidelines in all
operating countries
Country-specific LTIP guidelines
Long-term incentive plansTypes & performance measures
Regional differences in the use of performance measures• The most popular performance measure for European and North American
companies is total shareholder return (TSR).• The most frequently applied internal performance measures are profit/
earnings measures.
21
17
1211 11
8
5
21
8
5
23
18
12
10
3
14
5
2 2
7
3
20
16
1011
17
45
10
9
5
14 14
18
11
7 7
4
7
4
7 7
TSR Profit /earnings
Return oncapital
EPS (Earningsper share)
Sales /revenues
Share price Cash flow (Economic /cash) Value
added
Return onsales
Otherfinancialmeasures
Other non-financialmeasures
LTIP performance measures(in %)
Total
Europe
North America
Rest of World
Most companies use two or three performance measures
• 67% of the companies use two or three performance measures and 28% of the companies only use a single one.
• The use of two or three measures has a higher prevalence in Europethan in North America.
• The use of only one measure is most common in North America.
28
67
4
16
75
10
33
50
17
23
69
8
single
two or three
more than three
Number of performance measures used
(in % of companies)
Total Europe North America Rest of World
Relative performance measures are preferred in Europe and North America
• Performance measures are used in absolute (e.g. “revenues in USD”) or relative terms (e.g. “increase in revenues compared to last fiscal year”).
• European and North American companies have a higher preference for using relative performance measures compared to their counterparts in other regions.
55
59
57
33
Total
Europe
North America
Rest of World
Relative performance measures across regions
(in % of companies)
TSR is the most frequently used relative performance measure
• The most popular performance measure used in relative terms is TSR. Frequently, TSR is measured by comparing the TSR of a peer group or index.
• Internal measures are most frequently used in absolute terms.
17
88
73
85
81
62
69
80
81
75
83
12
27
15
19
38
31
20
19
25
TSR
Profit/earnings
Return on capital
EPS(Earnings per share)
(Sales/ revenues)
Share price
Cash flow
(Economics/cash) Value added
Other financial measures
Other non-financial measures
Absolute and relative performance measures
(in % of measures)
Absolute Relative
Successful companies make more use of relative performance measures
• High performing companies make significantly more use of relative performance measures than low performing companies.
• It can be concluded that it is beneficial to apply relative performance measures in LTIP.
59
53
High performing companies
Low performing companies
Use of relative performance measures
(in % of companies)
Long-term incentive plansVesting & settlement
Vesting periods trend towards three years• Vesting periods are quite
similar across all economic regions and typically range between 36 and 48 months.
• Vesting periods below 36 months are rather uncommon as well as vesting periods longer than 48 months.
1
4
2
43
36
14
1
0 months
12 months
24 months
36 months
48 months
60 months
72 months
LTIP vesting periods(in % of companies)
Equity settlements are less common in Europe
52
17
31
38
38
25
62
3
34
57
7
36
Equity
Cash
Both
LTIP settlement(in % of companies)
Total Europe North America Rest of World
• The majority of participating companies settle LTIP awards in equity rather than in cash.
• Equity settlements are most common in North America and in other economic regions.
Long-term incentive plansAdministration & success
Most companies measure plan success via employee retention
2220
16 15
11
8
42
1
18 19 18
14 14
7
4 3 2
24
21
13
17
109
42
0
29
18
35
12
6
0 0 0 0
Retainingemployees wewant to retain
Attractingemployees wewant to attract
We don'tmeasure this.
Companyperformance
Employeeengagement
Shareownership
Employeecontribution
rate
Participationrate
Other
Measures of success(in %) Total
EuropeNorth AmericaRest of World
• Most companies do measure the success of meeting their LTIP objectives by assessing whether they are able to retain those employees they want to retain (22%) or attract those employees they want to attract (20%).
• However, 16% do not apply any success measures.
Share purchase plansImplementation & participation
Share ownership is the most important objective for SPP implementation
• Besides share ownership, identification with the company and employee engagement are highly ranked SPP objectives.
• In Europe, identification with the company is the most important objective; in North America it is share ownership.
45
41
30
17
15
15
15
13
12
Share ownership
Identification with the company
Employee engagement
Motivation
Profit / Performance Sharing
Retention
Stay competitive paywise
Strategy
Best market pay
SPP objectives ranked "very high"(in % of companies)
More than half of the surveyed companies have implemented SPP plans
• Companies seem to be aware of the beneficial impact of SPP since more than half have implemented such plans.
• There are great regional differences: European and American companies show a higher implementation rate than companies in other economic regions.
59
62
62
38
Total
Europe
North America
Rest of World
SPP implementation(in % of companies)
Almost half of the companies offer SPP to over 75% of their employees
• Companies often use SPP to establish a comprehensive equity culture within their organization.
• Almost half of companies offer SPP to over 75% of their employees.
60
0
20
20
7
10
33
50
29
11
11
50
21
10
22
48
<25%
25-50%
51-75%
>75%
SPP eligibility(in % of companies)
Total Europe North America Rest of World
Good communication is key for high SPP participation
• One essential aspect positively affecting SPP participation is good communication, which was rated as very important criterion for a high SPP participation rate by 64% of companies.
• A clear plan design and clear plan rules as well as a user-friendly platform/technology were also rated as very important criteria.
1
2
1
1
3
6
3
14
12
30
45
49
64
36
31
Good communication
Clear plan design/rules
User-friendlyplatform/technology
Criteria for high SPP participation(in %)
very low low moderate high very high
Companies use SPP participation rate to measure plan satisfaction
• Satisfaction with SPP plans is an important topic and survey results inidcate that companies measure employee satisfaction in different ways.
• With 42%, participation rate is the most popular satisfaction measure.
• There are no significant differences across economic regions.
42
7
12
3
10
26
41
6
16
4
14
18
43
7
9
2
7
33
43
14
0
0
0
43
Participation rate
Attrition rate
Employee surveys
Focus groups
Manager/executive feedback
We don´t measure this
SPP satisfaction measures(in % of companies)
Total Europe North America Rest of World
Share purchase plansTypes & design
European companies grant higherdiscounts than North American companies
• Looking at the discount levels of share discount plans reveals that European companies tend to grant higher discounts than North American companies.
• 53% of European companies use discounts of 16% or more while none of the North American companies provide discounts this high (likely due to a discount limit of 15% for tax quali-fied plans in the US).
18
21
8
11
7
54
37
71
8
21
12
32
Total
Europe
North America
Share discount levels(in % of companies)
0 - 5% 6 - 10% 11 - 15% 16 - 20% > 20%
Lookback periods are most popular among North American companies
• To determine the price at which participants can purchase shares, companies can apply a lookback period during which the lowest purchase price determines the final purchase price.
• Having a lookback period in place is significantly more popular among North Ameri-can companies (46%) than among their Euro-pean peers (16%).
29
16
46
0
71
84
54
100
Total
Europe
North America
Rest of World
Application of a lookback period(in % of companies)
No Yes
Administration & Communication
Overall administration budgets per plan participant differ widely
• There are significant differe-nces in the administration budget per plan participant –ranging from around USD 35 at the 25th percentile to approximately USD 395 at the 75th percentile.
• At median, the companies´overall administration budget per plan participant is around 150 USD.
Overall administration budget per participant (in USD)
Percentile USD
25th 35.3
Median 147.1
75th 396.0
Obtaining benchmark reports is the most important aspect in data analytics
• The possibility to obtain benchmark reports is considered the most important aspect in connection with data analytics.
• Also, the possibility to measure plan attractiveness or to measure participant behavior are considered as important aspects.
1
3
4
2
6
14
5
19
37
33
36
42
37
38
43
31
20
11
11
6
Possibility to get benchmark reports
Possibility to measure planattractiveness
Possibility to measure participantbehavior
Possibility to measure the value ofassets
Importance of aspects in connection with data analytics
(in %)
very low low moderate high very high
Possibility to get benchmark reports
Possibility to measure plan attractiveness
Possibility to measure participant behavior
Possibility to measure the value of assets
Quality of service is a key factorin administrator selection
• Quality of service is considered the most important criterion in the selection of an external plan administrator.
• Other criteria such as global reach, regulatory/industry compliance or offered technology are also significant criteria.
• The price only plays a secondary role.
3
1
2
1
1
7
11
10
34
31
28
34
38
43
69
61
55
50
22
1
Quality of service
Global service provider (reach)
Regulatory / industrycompliance
Technology
Price
Criteria for the selection of an external plan administrator
(in % of companies)
very low low moderate high very high
Emails are the most important communication tool for equity compensation• Most communication in connection with equity compensation is based on
emails, the intranet or letters, brochures and flyers.• In general, interactive communication tools such as workshops, image videos
and roadshows, as well as social media, have yet to play a more important role.
94
62 58
29 25
6 2
88
69 73
19 2510
2
98
6351
34 29
2 2
100
40 40 40
7 7 7
Emails Intranet Letters /brochures /
flyers
Workshops /Roadshows
Image videos Other Social media
Communication tools for equity compensation(in % of answers)
Total
Europe
North America
Rest of World
Three drivers of equity culture and performance
Companies should increase both the portion of LTIP in the compensation structure and the portion of LTIP eligible employees 1
Companies should actively promote their equity culture by introducing LTIP on a broad scale as well as broad SPP. Both LTIP and SPP are key factors to compete successfully in a globalized economy.
2
Companies should communicate their LTIP and SPP more intensively. Intensive communication makes plans more understandable, increases employee satisfaction and thus creates a higher return on investment.
3
