The GEI Survey is the world’s leading study on equity-based compensation and provides insight into current market best practice in terms of plan design, administration and communication of Long-term Incentive Plans (LTIP) and Share Purchase Plans (SPP).
163 companies participated in this year’s survey, which had a special focus on North America (51% of companies) and Europe (34% of companies).
Overall, this year’s study found evidence that successful companies use equity-based compensation to a larger extent, fostering the attraction, motivation, retention and ownership culture of their employees. The survey shows how a sophisticated equity culture positively shapes the performance culture within companies and that a compensation strategy that aims at a deeply integrated and well-balanced equity culture is a crucial factor for company success.
Equatex and hkp/// group were two of the survey’s premium sponsors. Here, Business Development Director at Equatex, Paul Stoddart, and hkp/// group Partner, Dr. Björn Hinderlich, offer ten further insights from the survey.
Dr Björn Hinderlich
1: ‘Retention’ ranked as the most important LTIP objective
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.
2: Successful companies make more employees eligible
High performing companies offer LTIPs to more employees than low performing companies. Performance is measured with an industry-adjusted return on assets (ROA) averaged over the past three years. High (low) performers have return on assets in the upper (lower) third of the distribution.
3: North American companies are still at the forefront of LTIP grants
Employees of North American companies receive a higher portion of long-term incentives as a proportion of total compensation, than employees of European companies on all levels of the corporate hierarchy. Across all economic regions, the portion of long-term incentives generally decreases further down the corporate hierarchy.
4: There are regional differences in the use of plan types and performance measures
European companies prefer Performance Shares as a long-term incentive, while North American companies prefer Restricted Stock (units). The most popular performance measure for European and North American companies is Total Shareholder Return (TSR).
5: Ratable vesting is most prevalent in North 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.
6: Share ownership is the most important objective for companies offering SPP
Besides share ownership, identification with the company and employee engagement are highly ranked SPP objectives. Companies seem to be aware of the beneficial impact of SPP since more than half of the participating companies have implemented such plans.
7: 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 organisation. However, participation rates in Europe are just below 40% and in North America less than 30%.
8: Good communication is key for high SPP participation
One essential aspect positively affecting SPP participation is good communication as 64% of companies rated it as very important for a high SPP participation rate. A clear plan design and clear plan rules as well as a user-friendly platform/technology were also rated as very important.
9: 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 make use of matching plan types (45%) as well as share discount plans (48%).
10: Regulatory requirements and costs are the main obstacles to SPP implementation
Companies assess regulatory requirements as the main obstacle to SPP implementation; this is particularly the case in Europe but less pronounced in Switzerland. Other perceived issues are costs, the implementation process and IT implementation.