Long-term incentives decreasing in size in U.S.

Survey finds one-size-fits-all not as popular
|hrreporter.com|Last Updated: 10/05/2007

Many companies in the United States are significantly decreasing the size of equity awards to executives outside the U.S. In a survey by HR consulting firm Towers Perrin, only one-quarter of companies in the near future expect to grant the same number of shares to both U.S. and non-U.S. employees at the same level in the organization, abandoning “a once-predominant practice.” Instead of one-size-fits-all, businesses are differentiating long-term incentive award sizes by geography and tying awards closer to local country practices.

The 2007 Global Long-Term Incentive Policies Survey of 61 U.S. multinationals, with median revenues of $21 billion US, also found companies are looking to decrease stock options and restricted stock awards. Instead, they intend to focus on other types of performance-related plans such as performance shares.

Towers Perrin also found more than one-quarter have reduced long-term incentive participation levels and more than one-third plan to either reduce or further reduce future levels.

“With the expensing of stock options and greater shareholder pressure, companies are focusing on the cost of equity and being more careful about how much they distribute,” said James Matthews, principal and head of the compensation unit of Towers Perrin’s global consulting group in Stamford, Conn. “The old approach — exporting U.S. award sizes to executives around the world — was very attractive to non-American executives, given that non-U.S. companies did not offer such generous rewards. But in today’s more cost-conscious environment, this approach is hard to defend.”

The survey found 11 per cent provide awards with a value representing a consistent percentage of salary globally and, given salaries vary by geography (often lower outside the U.S.), so will award sizes.

“It’s actually a shift toward an approach Europeans have found highly successful in global markets,” said Matthews. “Organizations still seek to establish a consistent global policy but are implementing that policy in a more differentiated and customized way in each region or country, taking into account local practices and regulations.”

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