Equity Compensation Continues Shift Towards Restricted and Performance-Based Stock

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Technology companies continue to adjust equity-based compensation plans in response to expensing requirements. The trend is toward reduction of the reliance on stock options and an exploration of other equity vehicles, mainly restricted stock, restricted stock units, and performance-based stock.

In response to expensing requirements, technology companies continue to shift equity compensation away from stock-option based-based plans, according to a new compensation trends survey from Culpepper and Associates.

Prior to expensing requirements, 68 percent of tech companies offered non-qualified stock options and 53 percent offered qualified options as part of their equity compensation plans. The percent of companies offering either of these plans dropped by 11 points after the option expensing rules under FAS 123(R) took effect.

"Although stock options remain the most popular equity compensation vehicle, restricted stock and performance-based stock have become more commonplace," says Will Parsons, Senior Vice President of Research with Culpepper. Prior to expensing requirements, 31 percent of companies offered restricted stock. Currently, 38 percent of companies offer restricted stock. The percent of companies offering performance-based stock increased from 17 percent to 24 percent.

Over half of the companies offering employees equity-based compensation intend to maintain their current level of penetration. Of the 41 percent of companies making changes in the plan penetration, nearly all intend to restrict equity compensation to higher job levels than before.

The Black-Scholes option pricing model continues to be the most commonly used method for calculating the value of employee stock options. Eighty-seven percent of companies use this method for purposes of expensing options. Nearly all companies use the same valuation method when reporting the option expense on financial statements and communicating the value of the options to employees.

Seventy-three percent of companies plan to make, or have made, changes to their option-based compensation plans. All of the changes involved a reduction of the use of options with 48 percent reducing the number of employees receiving options and 44 percent reducing the total number of options granted. One-third of the companies will be replacing some or all of the stock options with shares of restricted stock or restricted stock units.

"Changes are not limited to stock option plans. Over half of tech companies also plan to alter or eliminate their Employee Stock Purchase Plans (ESPPs)," according to Parsons. The most common change is an elimination of the "look-back" feature, which allows an employee to purchase stock at the lowest price within a specified time-frame. Seventeen percent of companies with ESPPs plan to eliminate this employee benefit.

"Technology companies continue to adjust equity-based compensation plans in response to expensing requirements. The trend is toward reduction of the reliance on stock options and an exploration of other equity vehicles, mainly restricted stock, restricted stock units, and performance-based stock," concludes Parsons.

A copy of the survey report is available at http://www.culpepper.com/p/TrendsInEquityPay/

About Culpepper

Culpepper and Associates (http://www.culpepper.com), founded in 1979, conducts worldwide salary surveys and provides benchmark data for compensation and employee benefit programs. Our data spans a full-range of jobs in technology and life science companies, from board members down through every area, function and level.

This press release was distributed through eMediawire by Human Resources Marketer (HR Marketer: http://www.HRmarketer.com) on behalf of the company listed above.

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Leigh Culpepper
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