Equity Compensation All Stars Game: Silicon Valley vs. The Rest of the World
A SUMMARY REVIEW OF THE 2016 DOMESTIC STOCK PLAN DESIGN SURVEY RESULTS CO-SPONSORED BY DELOITTE CONSULTING LLP AND THE NASPP
Presenters: • Barbara Baksa, CEP, NASPP • Tara Tays, Deloitte Consulting LLP
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The Line-up: Survey Overview and Participant Profile
The Baseball Diamond: Plan Design
At Bat: Stock Grants/ Awards
On Deck: Performance Awards
On the Bench: Stock Options
Agenda
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Tara Tays is the West Coast leader for Deloitte Consulting LLP’s Compensation
Strategies practice. Tara has over 18 years of experience advising
management and compensation committees on a wide range of
compensation matters.
Barbara Baksa serves as Executive Director for the NASPP and has over 20
years’ experience speaking and writing on equity compensation topics. She also
serves on the Advisory Board for the CEP Institute and is co-editor of The Corporate
Executive.
Meet Your Commentators
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The Line-Up: Survey Overview and Participant Profile
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Industry Number of Survey Participants General Industry 434 High-Tech 145 Silicon Valley (includes companies headquartered in San Francisco, Oakland, San Jose, and surrounding areas in Northern California)
57
Participant Profile
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Participant Profile – Primary Industry Classification Financial Services, Energy/Mining/Oil & Gas, and Technology Services are the
three largest industries represented from General Industry
Technology Services, Computer Software and Services, and High Technology Manufacturing are the three largest industries represented from the High-Tech Industry and Silicon Valley(1)
1% 2% 3% 3% 3% 3% 3% 3% 3% 4% 4% 5% 6% 7% 7% 8% 8% 9% 9% 9% 8% 9%
17% 21% 20%
26% 26%
18% 21%
General Industry High-Tech Silicon Valley
(1) For Silicon Valley, only industries with 7 or more responses were reported.
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20% 19% 21% 10%
26%
4%
23% 13% 10% 6%
43%
5%
100%
Northeast Southeast Midwest Southwest West Headquartedoutside the U.S.
0%
20%
40%
60%
80%
100%
General Industry High-Tech Silicon Valley
Participant Profile – Location of Corporate Headquarters
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High-Tech General Industry
Is your company publicly traded? What is the primary exchange your company’s stock is traded on?
96%
4%
92%
8%
91%
9%
Yes No
70%
28%
2%
51% 47%
2%
46% 52%
2%
NYSE NASDAQ Global orGlobal Select
Markets
Other marketsystem
Silicon Valley
Participant Profile – Publicly Traded
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5% 5%
12%
19% 19%
13% 14% 13% 12% 8%
21% 19%
18%
9% 7% 7%
9% 11%
30%
14%
20%
Less than $100million
$100 – 349.9 million
$350 – 999.9 million
$1 – 2.49 billion $2.5 – 4.9 billion $5 - 9.9 billion $10 - 19.9 billion $20 billion andabove
General Industry High-Tech Silicon Valley
60% of General Industry participants generated less than $5B in revenues during the most recent FY
General Industry
High- Tech
Silicon Valley
Yes 43% 30% 21% No 57% 70% 79%
Is your company a member of the Fortune 500©?
30%
(1) For Silicon Valley, only ranges with 7 or more responses were reported.
Participant Profile – Revenues(1)
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Approximately 50% of participants have a market capitalization less than $5B
8% 8%
14%
17% 16% 14%
22%
13%
10% 11%
19% 19%
13% 15%
14% 13% 13% 14% 13% 14%
20%
Less than $350million
$350 – 999.9 million $1 – 2.49 billion $2.5 – 4.9 billion $5 - 9.9 billion $10 - 19.9 billion $20 billion andabove
General Industry High-Tech Silicon Valley
Participant Profile – Market Capitalization
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Participant Profile – Full-Time Employees General Industry
2% 5%
7% 9% 10%
19% 16%
18%
9%
4% 2% 3%
6% 7% 8%
14% 16%
24%
14%
5%
1 - 100 101 - 250 251 - 750 751 - 1,500 1,501 -2,500
2,501 -5,000
5,001 -10,000
10,001 -30,000
30,001 -100,000
More than100,000
In the U.S. Globally
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11% 13% 14%
9%
25%
11% 11%
6%
1%
7%
12% 10% 10%
14% 14%
22%
7%
1%
1 - 250 251 - 750 751 - 1,500 1,501 -2,500
2,501 -5,000
5,001 -10,000
10,001 -30,000
30,001 -100,000
More than100,000
In the U.S. Globally
Participant Profile – Full-Time Employees High-Tech Industry
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9%
13%
25%
20%
13%
20%
9% 9%
18% 19% 19%
26%
1 - 250 251 - 750 751 - 1,500 1,501 - 2,500 2,501 - 5,000 More than 5,000
In the U.S. Globally
Participant Profile – Full-Time Employees Silicon Valley
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The Baseball Diamond: Plan Design
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81% 69% 70%
Performance Shares/Units
89% 88% 91%
Restricted Stock/Units
Employee Participants Prevalence of LTI Vehicles 79% 84% 77%
52%
19%
80% 81% 77% 66%
35%
91% 91% 86% 77% 57%
CEO, CFO andNamed Executives
Other SeniorManagement
Middle Management Other ExemptEmployees
Non-ExemptEmployees
80% 69%
24% 11% 3%
67% 59%
14% 6% 3%
68% 57%
7% 5% 0%
CEO, CFO andNamed Executives
Other SeniorManagement
Middle Management Other ExemptEmployees
Non-ExemptEmployees
50% 45%
26% 13%
7%
50% 44%
25% 19% 15%
48% 41%
23% 18% 9%
CEO, CFO andNamed Executives
Other SeniorManagement
Middle Management Other ExemptEmployees
Non-ExemptEmployees
51% 51% 48%
Stock Options/ SARs
High-Tech General Industry Silicon Valley
Prevalence of Equity Vehicles
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Approximately one third of surveyed participants have plans that use a flexible share reserve (or fungible share reserve), whereby full value awards count more against the share reserve than stock options
1.61 2.00
2.43
1.50 2.00
2.29
1.65 2.00 2.20
0.000.501.001.502.002.503.00
25th Percentile 50th Percentile 75th Percentile
General Industry High-Tech Silicon Valley
Plan Design – Source and Use of Shares
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92% of General Industry surveyed companies, 79% of High-Tech surveyed companies, and 77% of Silicon Valley surveyed companies averaged less than 15% overhang during the last three years 60%
24%
8% 9%
46%
24%
9%
21% 27% 27%
23% 23%
Less than 7.5% 7.50% - 12.49% 12.50% - 14.99% 15.00% or more
General Industry High-Tech Silicon Valley*Overhang is equal to the equity award shares outstanding plus shares available for future grant divided by common shares outstanding.
Plan Design – Overhang*
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76% of General Industry surveyed companies, 55% of High-Tech surveyed companies, and 40% of Silicon Valley surveyed companies averaged less than 2.5% burn rate for the last three years
76%
11% 12%
55%
18% 24%
40%
20%
40%
Less than 0% to 2.49% 2.50% - 3.99% 4.00 or more
General Industry High-Tech Silicon Valley*Burn rate is equal to the total number of options and restricted shares granted in a year divided by the total number of common shares outstanding.
Plan Design – Burn Rate*
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The majority of surveyed companies have clawback provisions that are applicable to the following levels of employees:
The most common events that could cause grants to be forfeited include:
99% 89%
63%
99% 96%
49%
100% 92%
50%
CEO/CFO Other NEOs Other SeniorManagement
General Industry High-Tech Silicon Valley
Event Prevalence(1)
General Industry
High- Tech
Financial Restatement Due to Fraud or Misconduct 90% 88%
Ethical Misconduct / Fraud / Intentional Misconduct 69% 69%
Inappropriate Use of Trade Secrets / Breach of Confidentiality
37% 36%
Violation of Non-Compete Agreement 37% 39%
Plan Design – Clawback Provisions
(1) Silicon Valley companies were excluded from the table due to the low number of responses.
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Majority of companies allow assumption/substitution of awards upon a CIC > 70% of General Industry > 80% of High-Tech > 90% of Silicon Valley
Does your plan allow for single or double trigger acceleration upon a change in control?
16% 17% 51% 50% 28% 28%
Restricted Stock/Units Performance Awards
Single TriggerDouble TriggerAt Discretion of Board/Committee
18% 17% 62% 60%
17% 17%
Restricted Stock/Units Performance Awards
Single TriggerDouble TriggerAt Discretion of Board/Committee
18% 18% 31% 30% 38% 39%
Restricted Stock/Units Performance Awards
Single TriggerDouble TriggerAt Discretion of Board/Committee
Plan Design – Treatment of Change-in-Control
General Industry
High-Tech
Silicon Valley
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At Bat: Stock Grants / Awards
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Percentage of surveyed companies with employees currently receiving the following types of stock/unit grants:
Stock Gants/Awards – Current Participants(1)
31%
6%
83%
14% 4% 2%
26%
7%
83%
15% 6% 4%
13%
90%
18%
0%
20%
40%
60%
80%
100%
RS (not in lieu ofcash)
RS (in lieu ofsalary or bonus)
RSUs (not in lieuof cash)
RSUs (in lieu ofsalary or bonus)
Unrestricted stock(not in lieu of cash)
Unrestricted stock(in lieu of salary or
bonus)
General Industry High-Tech Silicon Valley
24 (1) For Silicon Valley companies, only answers with 7 or more responses were reported.
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Grants to non-Section 16 insiders are approved by:
Stock Grants/Awards – Grant Approval Procedures(1)
1%
25%
58%
6% 9%
28%
50%
7% 14%
24%
59%
0%
20%
40%
60%
80%
CFO CEO Committee of theboard
Fullboard
Other management
General Industry High-Tech Silicon Valley
25 (1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.
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Grants to non-Section 16 insiders are approved as follows:
Stock Grants/Awards – Grant Approval Procedures(1) (cont.)
26
General Industry High-Tech Silicon Valley
When the compensation committee meets 26% 27% 27% Once a month (at the same time every month) 22% 33% 44% Once a quarter (at the same time every quarter) 17% 18% 22% On hire date 9% 7% N/A Once a year (at the same time every year) 8% 5% N/A When the board meets 5% 7% N/A We do not issue new hire grants 3% N/A N/A Only during open-window periods 3% N/A N/A After earnings are released 2% N/A N/A Other 2% N/A N/A No set schedule 14% 7% N/A
(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.
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For General Industry participants, graded vesting is the most commonly utilized vesting form (72%), followed by cliff vesting (29%).
Graded vesting is even more common in High-Tech (87%) and Silicon Valley (98%)
The chart below illustrates the length of graded vesting schedules:
Stock Grants/Awards – Graded Vesting(1)
28
44% 43%
8% 4%
24%
64%
6%
80%
0%
20%
40%
60%
80%
100%
3 years 4 years 5 years Other
General Industry High-Tech Silicon Valley
(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.
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Are awards subject to a post holding vesting period?
Stock Grants/Awards – Post-Vesting Holding Periods(1)
14% 2% 2%
82%
9%
88% 90%
0%
20%
40%
60%
80%
100%
For executives only For a broader group ofemployees, but not all
employees
For all employees No
General Industry High-Tech Silicon Valley
29 (1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.
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Below are the extent to which stock grants/awards are forfeited for each industry under normal retirement:
Stock Grants/Awards – Termination/Forfeiture Provisions: Normal Retirement
16%
20%
31%
4%
14%
27%
8%
8%
7%
73%
56%
36%
0% 20% 40% 60% 80% 100%
Silicon Valley
High-Tech
General Industry
Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture
30
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Below are the extent to which stock grants/awards are forfeited for each industry under disability:
Stock Grants/Awards – Termination/Forfeiture Provisions: Disability
33%
40%
66%
8%
15%
4%
8%
6%
63%
45%
23%
0% 20% 40% 60% 80% 100%
Silicon Valley
High-Tech
General Industry
Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture
31
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Below are the extent to which stock grants/awards are forfeited for each industry under death:
Stock Grants/Awards – Termination/Forfeiture Provisions: Death
33%
51%
69%
2%
6%
4%
10%
5%
63%
37%
20%
0% 20% 40% 60% 80% 100%
Silicon Valley
High-Tech
General Industry
Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture
32
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On Deck: Performance Awards
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95%
19% 8%
93%
8% 14%
97%
6% 6% 0%
20%
40%
60%
80%
100%
120%
Performance awardspaid out in stock
Performance awardspaid out in cash
Stock options
General Industry High-Tech Silicon Valley
35
Percentage of surveyed companies with employees currently receiving the following types of performance awards:
Performance Plans – Current Participants
-36- 36
Percentage of surveyed companies with the following types of performance metrics:
16%
0%
48%
35%
12%
9%
33%
26%
49%
13%
17%
21%
28%
52%
0% 10% 20% 30% 40% 50% 60%
EBITDA
ROIC/RONA
Revenue
EPS
TSR
General Industry High-Tech Silicon Valley
Performance Plans – Performance Metrics(1)
(1) For Silicon Valley companies, only answers with 7 or more responses were reported.
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92%
8%
92%
8%
100%
0% 0%
20%
40%
60%
80%
100%
120%
Yes No
General Industry High-Tech Silicon Valley
38
For surveyed companies that grant Total Shareholder Return (TSR) awards, is TSR relative?
Performance Plans – Performance Metrics
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81%
19%
85%
15%
0%
20%
40%
60%
80%
100%
Yes No
General Industry High-Tech
39
For surveyed companies that grant Total Shareholder Return (TSR) awards, do awards pay out if TSR is negative but the company outperformed its peers?
(1) Silicon Valley companies were excluded from graph due to the low number of responses.
Performance Plans – Performance Metrics(1)
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69%
31%
69%
31%
0%
20%
40%
60%
80%
Yes, in all instances No
General Industry High-Tech
40
For surveyed companies that grant Total Shareholder Return (TSR) awards, are TSR awards subject to a payout cap?
(1) Silicon Valley companies were excluded from graph due to the low number of responses.
Performance Plans – Performance Metrics(1)
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39% 42%
19%
47% 41%
12%
55%
29%
16%
0%
20%
40%
60%
1 2 3 or more
General Industry High-Tech Silicon Valley
41
How many performance metrics are your awards typically subject to? Performance Plans – Performance Metrics
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62%
18% 20%
51%
27% 22%
55%
21% 24%
0%
20%
40%
60%
80%
Yes No Combination
General Industry High-Tech Silicon Valley
43
Are the performance metrics different than the measures utilized in the company’s annual incentive plan?
Performance Plans – Performance Metrics
Approximately 90% of respondents measure performance at the corporate level only.
-44- 44
Indicate the length of the performance period (period in which performance is measured):
12%
13%
15%
4%
2%
15%
78%
78%
42%
4%
5%
27%
2%
0% 20% 40% 60% 80% 100%
Performance Shares
PerformanceCash/Units
PerformanceOptions/SARs
1 Year 2 Years 3 Years 4 years or longer Other
Performance Plans – Performance Period and Holding: General Industry(1)
(1) High-Tech and Silicon Valley companies were excluded from graph due to the low number of responses.
-45- 45
Below are the extent to which performance awards are forfeited for each industry under normal retirement:
17%
34%
61%
6%
5%
10%
6%
6%
73%
54%
27%
0% 20% 40% 60% 80% 100%
Silicon Valley
High-Tech
General Industry
Payout at end of performance period Payout at time of terminationOther/Discretionary Forfeiture
Performance Plans – Termination/Forfeiture Provisions: Normal Retirement
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Below are the extent to which performance awards are forfeited for each industry under disability:
19%
32%
48%
16%
21%
30%
16%
14%
7%
48%
33%
17%
0% 20% 40% 60% 80% 100%
Silicon Valley
High-Tech
General Industry
Payout at end of performance periodPayout at time of termination
Performance Plans – Termination/Forfeiture Provisions: Disability
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Below are the extent to which performance awards are forfeited for each industry under death:
19%
33%
48%
20%
28%
35%
16%
10%
7%
45%
29%
15%
0% 20% 40% 60% 80% 100%
Silicon Valley
High-Tech
General Industry
Payout at end of performance period Payout at time of terminationOther/Discretionary Forfeiture
Performance Plans – Termination/Forfeiture Provisions: Death
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9%
24%
5%
27% 36% 36%
25% 28%
48%
21% 15%
0%
20%
40%
60%
Other At Board/CommitteeDiscretion
Performance awards aresettled at maximum grant
value
Performance awards arepro-rated and settled
based on the achievementof the performance
metric(s) between the startof the performance periodand change in control date
Performance awards aresettled at target grant
value
General Industry High-Tech Silicon Valley
48
The chart below summarizes if all or a portion of performance awards accelerate upon a change in control:
Performance Plans – Change in Control Acceleration(1)
(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.
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On the Bench: Stock Options
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18%
86%
8% 8%
28%
81%
32%
82%
0%
20%
40%
60%
80%
100%
ISO NQSO Stock SAR Cash SAR
General Industry High-Tech Silicon Valley
50
Approximately 55% of the survey respondents maintain a stock option plan; below are the following types of stock options/SARs disclosed by individuals that currently receive stock option awards:
(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.
Stock Options – Current Participants(1)
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83%
1% 1% 9% 1% 3% 3%
62%
21% 25%
45%
0%20%40%60%80%
100%
Annually Quarterly Monthly One-year cliff,monthly
thereafter
Six-month cliff,monthly
thereafter
One-year cliff,quarterlythereafter
Other
General Industry High-Tech Silicon Valley
51
The majority of the surveyed companies utilize graded vesting followed by cliff vesting For surveyed companies with graded vesting, the options vest as follows(1):
Stock Options – Vesting
Industry Graded Vesting Cliff Vesting General Industry 90% 10% High-Tech 97% 3% Silicon Valley 91% 9%
(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.
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Below are the extent to which performance awards are forfeited for each industry under normal retirement:
14%
11%
27%
5%
21%
28%
5%
8%
7%
76%
60%
38%
0% 20% 40% 60% 80% 100%
Silicon Valley
High-Tech
General Industry
Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture
Stock Options – Termination/Forfeiture Provisions: Normal Retirement
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Below are the extent to which performance awards are forfeited for each industry under disability:
34%
36%
50%
6%
17%
5%
5%
5%
62%
53%
34%
0% 20% 40% 60% 80% 100%
Silicon Valley
High-Tech
General Industry
Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture
Stock Options – Termination/Forfeiture Provisions: Disability
-54- 54
Below are the extent to which performance awards are forfeited for each industry under death:
34%
48%
62% 4%
5%
5%
5%
62%
47%
31%
0% 20% 40% 60% 80% 100%
Silicon Valley
High-Tech
General Industry
Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture
Stock Options – Termination/Forfeiture Provisions: Death
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2017 Domestic Stock Plan Administration Survey is currently in progress
Covers a variety of topics related to stock compensation, including: – Administration and communication of stock plans – ESPPs – Stock ownership guidelines – Insider trading compliance – Outside director plans
Register to participate today at bit.ly/survey17cep
Don’t Miss Out on This Year’s Survey
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Contact Information
Barbara Baksa, CEP
NASPP
510-493-7599
Tara Tays
Deloitte Consulting LLP
213-688-5244
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