In a recent Equilar blog titled “Companies Just Say No to “Pay for Pulse,” the author cites a recent study of Equilar 100 companies that found 70% of the executive pay mix is now performance based. In another report (Equilar’s 2015 Equity Trends Report), “nearly 70% of S&P 1500 companies used performance awards in 2014, up from about 50% in 2010.”
There has been a great deal of evolution in the mix of equity incentive compensation vehicles and terms over the last decade. The use of stock awards has surpassed that of stock options and performance based vesting continues on an upward rise. In the wake of Dodd-Frank, Say-on-Pay, and other measures, time based vesting of options and stock awards, or, as some call it, “pay for pulse” is diminishing.
Time will tell whether time-based vesting will vanish or remain a part of company stock plans. There is an argument that while performance based incentives are suitable for high level executives – those with the most control over corporate decisions, strategy and performance – there may be benefit to offering time based vesting awards to other employees of the organization where job functions are less strategic in nature and “retention” is the key objective of the award.