A company may grant equity awards for a variety of reasons:
- Attracting and retaining valuable employees.
- Motivating employees to work harder to increase the value of the company and its stock price.
- Aligning the financial interests of employees with those of shareholders.
- Conserving cash by paying part of compensation in stock options, restricted stock, stock appreciation rights, or other stock grants.
- Creating an ownership culture.
- Keeping its compensation package competitive with others in its industry and geographic area.
Surveys Show Common Reasons For Granting Equity Awards
In its 2013 Domestic Stock Plan Design Survey, the National Association of Stock Plan Professionals (NASPP) found that the following were the most commonly reported corporate reasons for granting stock options and restricted stock/RSUs.
|Reason for making grants to employees or executives
||For stock options (% of companies)
||For restricted stock/RSUs (% of companies)
|Align with shareholder interests
|Remaining competitive with industry peers
|Fostering a culture of employee ownership
|Reward for meeting specific performance targets
|Normal practice at hiring
In the 2013 iQuantic Global Long-Term Incentive Practices Survey by Buck Consultants, the 133 surveyed companies (mostly US multinationals) gave the following as their major reasons for granting equity awards.
|Reason for making equity awards
||Percentage of companies
|Acquisition or merger
|Recognition of excellent job performance
|One-time broad-based grant
|Special skill set
|Filing of patent
The compensation/HR organization WorldatWork, along with the Performance and Reward Centre and Hewitt New Bridge Street, surveyed 844 mostly American and British companies to ascertain their use of stock plans and their attitudes toward them. (See Employee Equity Plans: Do They Have A Future?) More than half of the responding companies make stock grants to employees. Over 60% of the companies operate employee stock purchase plans. The following table shows the primary reasons that the surveyed companies cited for granting equity awards, and the percentage of companies that gave each as the primary reason for a particular type of stock compensation.
|Align interests; get employees to focus on share price
|Attract & retain employees
|Needed for competitive rewards/benefits package
|Create wealth for employees
|Corporate tax efficiency
|Align employee awards with executive awards
Employees' Attitudes Toward Their Stock Compensation
A Morgan Stanley survey of employees with equity awards found that 59% of the respondents regard their grants as a major part of their compensation. Even more (82%) think that operating a stock plan is a smart business move for their company. Most of the survey respondents (92%) expressed satisfaction with their companies' stock plans, and 65% praised their stock plans as "extremely or very valuable" employee benefits.
A UBS survey (UBS Participant Voice: The UBS Equity Award Value Index) presents a number of interesting findings which show that the more experience employees have with equity awards, the more they value them and are motivated by them. For example, while the survey found that at least some employees at every level of vesting experience perceive equity compensation as "a way to build wealth," more than half (55%) of the respondents with six or more vesting experiences felt this way.