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Inducement Award

A stock grant made by a company to retain a top executive or employee, e.g. after the company is acquired and the buyer wants to create incentives for management to remain. This type of award usually has vesting features specifically intended to encourage the grant recipient to remain with the company. These awards are also called retention grants.

Under NYSE and Nasdaq rules, there is an inducement-award exception to the shareholder-approval requirements, presenting another use of these types of grants in other situations. When companies extend the life of a company's authorized share pool, one strategy is to make grants under this exception. Among their requirements, the grants can be made only to new employees, they must be a material inducement to the person accepting the job, and the independent compensation committee or majority of independent directors must approve it. These grants are not opposed by ISS and proxy-advisory firms when used "sparingly" for specific individuals and not broadly.

For examples of these types of grants for newly hired employees, see announcements by GrubHub and by Stitch Fix.

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