All in Stock Options

The world of compensation is filled with odd inconsistencies. Are you motivating someone to retain them, or are you retaining people, so you can motivate them? Are you looking to hire “world-class talent”, or do you want to pay more like your peers? Perhaps the most frustrating is the dilemma of compensation data being absolutely accurate and almost completely wrong.

Congratulations, you read this sentence! Not impressed? You shouldn’t be. You probably would be looking at this article if you couldn’t read basic sentences. Celebrating a foregone conclusion is a spiraling path to mediocrity. Achieving the inevitable is not an accomplishment.

This rule is a modification of a proposal that has been floating around for a few years. It is designed to allow individuals who exercise stock options, or vest in RSUs to delay recognizing the income and associated taxes. The theory is that this will allow people to become owners at a lower initial cost and catch up when there is some liquidity in the stock. BUT…

It is the holiday season and during this chilly time of the year many reach for a nip of whisky to create some warmth. Scotch is not a drink for everyone. But, for those who partake little else can replace it. Equity compensation is similar. It isn’t perfect for every company, or every situation, but when is done right it can be a game-changer.

My name is Equity Compensation and I have recently read of my passing and that of my family. I am happy to announce that I am alive. Dan Walter, the President and CEO of Performensation wrote my obituary a bit prematurely ("Obituary for Equity Compensation"). Like any famous personality I fully expect people to have an obituary ready to go, but I dislike having it published before I am actually gone.

Stock Options, Restricted Stock Units, young Performance Units and their cousin Non-Qualified Deferred compensation tragically died in 2017 as an unintended consequence of colliding with the 429 page U.S. tax reform called the ‘‘Tax Cuts and Jobs Act.’’ It should be noted that Employee Stock Purchase Plan is currently in critical condition at a local hospital.

IPOs and equity compensation have become almost mythical in the media and entertainment. Because of this they are often mythical in the eyes of your employees. We have all read about the massage therapist, artist or receptionist who became multimillionaire when their company went public. We have all see the headlines about twenty-something billionaires.

Not so long ago nearly all of the “big” executive compensation consulting firms were touting Relative Total Shareholder Return (R-TSR) as the solution to executive pay misalignment. Just add this one ingredient to LTIP and your officers and shareholders will be happy! In the past six months, many of those same firms have explained how it is crazy to depend on ONLY Relative TSR. They are now focusing the majority of performance weighting on financial and operational metrics.

ESPP are an ugly duckling in the world of compensation, or benefits, or payroll, or HR, or stock administration. The fact that they do not elegantly and easily fall into any single area is proof of their misshapen, clumsy bodies and inability to look and act like any other pay or benefits tool. But, when ESPPs are nurtured they can grow into something beautiful. And, when people are properly educated about them, the odd features and awkward start can still result in something special.