REDWOOD CITY, CA (March 01, 2017)— A new report from Equilar, featuring commentary from Solium Capital Inc. and Lane Caputo Compensation, found nearly double the percentage of S&P 500 companies offer performance awards to their executives than those in the TSX Composite.
The report, TSX Equity Compensation Trends, released today, explores the differences in executive pay design at TSX Composite companies vs. the S&P 500.
In fiscal year 2015—the most recent year for which reported executive pay data is available across both indices—the percentage of companies offering performance compensation in the form of equity went up. However, while 42.9% of TSX companies offered equity grants tied to performance, an increase from 26.1% in 2011, for the S&P 500, that same figure went from 65.4% in 2011 to 83.1% in 2015.
“The growth in performance equity is a natural evolution,” said Michael Caputo, Managing Partner for Lane Caputo Compensation. “Restricted stock units, unless performance-vested, cannot expire underwater and will always have some value, therefore guaranteeing shareholder dilution. Institutional investors and proxy advisors are pushing for performance restrictions to ensure that minimum levels of performance are achieved prior to these vehicles vesting with executives.”
The report details further how the top Canadian and U.S. companies compare when it comes to equity compensation. As shown with performance award practices, trend lines are often similar where actual figures depart. Another notable area of difference is in options grants for executives, which have been on a steady decline for S&P 500 companies. For the TSX, this trend has also been on a declining slope, but at a much slower rate. In 2011, around 80% of both TSX Composite companies and S&P 500 companies offered options to their executives. By 2015, that figure was less than 65% for the S&P 500, remaining at 75.0% for the TSX.
According to Luca Cutrone, Director of Client Service Management for Solium, there are several reasons companies may prefer options, not the least of which is that stock option benefits are taxed at 50% of the recipient’s marginal income tax rate in Canada, creating a significant advantage to the employee, while restricted shares are taxed at full marginal rates. Furthermore, competitive forces in some sectors, particularly in technology startups or bio-technology, compel companies to be more engaged in option granting in order to compete for talent against global peers.
Coupled with these factors, sometimes the difference is just size. “The majority of companies on the TSX are significantly smaller in size and scale than their S&P peers,” said Cutrone. “Smaller organizations face inertia and will often take a ‘if it’s not broken, don’t fix it’ approach to changes in plan design.”
About the Report
TSX Equity Compensation Trends, an Equilar publication, examines equity compensation design and granting practices at TSX Composite companies over the last five fiscal years, and provides side-by-side comparisons with the S&P 500. The report includes data on stock and options grant practices across organizations in these indices, as well as performance award trends to named executive officers (NEOs) in annual company filings, including the measurements used to determine payouts of those performance awards. Solium and Lane Caputo Compensation have offered independent commentary to provide color and context to how companies structure equity pay and the primary drivers behind equity-compensation design.
Equilar is the leading provider of board intelligence solutions. Companies of all sizes rely on Equilar for their most important boardroom decisions, including 70% of the Fortune 500 and institutional investors representing over trillion in assets. Equilar offers data-driven solutions for board recruiting, executive compensation and shareholder engagement that bring together business leaders, institutional investors and advisors to drive exceptional results while ensuring sound corporate governance. The Equilar suite of solutions includes industry-leading board education symposiums, comprehensive custom research services and award-winning thought leadership. Founded in 2000, Equilar is cited regularly by Associated Press, Bloomberg, CNBC, The New York Times, The Wall Street Journal and other leading media outlets. Learn more at www.equilar.com
About Solium Capital Inc.
Solium Capital Inc. (TSX: SUM) provides cloud-enabled services for global equity administration, financial reporting and compliance. From offices in the United States, Canada, the United Kingdom, Europe and Australia, our innovative software-as-a-service (SaaS) technology powers share plan administration and equity transactions for more than 3,000 corporate clients with employee participants in more than 100 countries. Follow us @Solium and visit us at solium.com.
About Lane Caputo Compensation Inc.
Lane Caputo Compensation Inc. (Lane Caputo) is an executive compensation consulting firm specializing in executive and board of director compensation reviews, strategic short- and long-term incentive design and executive retention issues along with compensation and executive contract issues surrounding mergers and acquisitions. Our consultants have been providing independent compensation advice for over 20 years, serving the Canadian market from offices in both Vancouver and Calgary.
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