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A Small Problem for Compensation Professionals

This is not the article I intended to post today. I had something else ready to go, but realized this was more important. I am sitting in my hotel room in San Diego, California getting ready to head over for the second day of the annual WorldatWork Total Rewards Conference. Total Rewards is a BIG category.In three days it is not possible to dive into every type and flavor of “reward”. But one important family of compensation, equity, is almost completely missing from this year’s event.

Don't get me wrong. There are some very good presentations on executive pay that touch upon equity. But broad-based equity is basically nonexistent on the schedule. There are no sessions on specific types of equity (all Comp Café readers know by now that they have different rules, purposes etc.) It is easy to see why so many compensation professionals struggle with better use of equity when one of the few industry events provides so little in the way of information.

When it comes to equity compensation, there are two kinds of pay professionals: Those who don’t use it at all, and those for whom equity is, was, or will be a major component of pay. If you are one of the first, then the lack of attention on this topic is not bothersome. If you are one of the second you may need to make it clear that more information and data would be appreciated.

Stock options are still a very popular form of compensation. In many cases they end up delivering the majority of the total pay (or all the pay) received by an employee (and this doesn’t even account for executive pay.)

Restricted Stock Units (RSUs) have become increasingly popular over the past five years. If the next few years include a downturn in the market, we will see even greater use of them.

Performance-equity is still mainly used for executives, but there are very good reasons why it should be pushed farther down into organizations.

Employee Stock Purchase Plans (ESPPs) are a very effective way to build alignment between individuals, the company and shareholders. They allow for incredible flexibility in design and a variety of tax advantages for individuals and companies.

Which should you use? When should you use them? Why should you use them? How should you design them, communicate them, optimize them? All of these are fantastic questions that generally require a compensation professional to do a ton of individual research or hire an expensive consultant. I am one of the expensive consultants so this benefits me, but most of you are the internal compensation professionals who must slog through a bunch of bad information to find a few nuggets of good.

Perhaps the data is wrong and less companies use equity as a tool than it appears. Perhaps everyone using equity is doing so well that additional information is not needed. But, maybe, just maybe, people want to learn to use the plans better. I’d love to hear your thoughts on this.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and has been deeply involved in equity compensation for a long, long time. Dan has written several inustry respurces including the recent Performance-Based Equity Compensation. He has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives” and a few other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

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