In the book The Knowing-Doing Gap: How Smart Companies Turn Knowledge into Action by Dr. Jeffrey Pfeffer, he identifies the causes for why we know what we should be doing, we just don’t always DO IT! The same can be said about stock plans – we are so focused on plan administration and reporting that we forget the “forest for the trees” principle. Are company stock plans effective and are they achieving the results company management and the Board of Directors (and shareholders) envisioned when they approved the cost to offer an employee stock plan?
Reviewing the efficacy of equity plans
The first step when reviewing the efficacy of your plan is to understand the goals of the plan. How long ago was this discussed? Who are the key stakeholders that should be part of the conversation? Have things changed since the discussion was last held?
Possible goals for your plan could include:
Supplementing the total compensation package.
Motivating employees to change their behavior.
Aligning employees with shareholders.
Aligning employees around the world in one program.
Offering similar compensation plans to your competitors
Analyzing equity plans history
It is difficult for a single plan to achieve all of these goals, yet so many companies ignore the need to focus and try to design a plan to “do it all”. Once you understand the most important objective of your plan, you can begin to analyze several years of history to see if the plan is operating as designed. Obtaining the data may be the most difficult challenge in this exercise. It will require working with your technology provider, broker, transfer agent and internal departments at your company to collect this data.
Managing this analysis along with your day-to-day duties can be a difficult balance. Most professionals responsible for share plans will need assistance from someone proficient in statistical analysis to ensure the results are accurate and can be relied upon to make strategic decisions.
Depending on the plan design (Is it an executive plan? A voluntary participation plan like an ESPP or SIP or SAYE? Is it broad-based?), the data required and the questions asked will vary. The timing will also have an impact on the results. Your stock price history, hiring practices and corporate activities (such as acquisitions, reduction in force, and global expansion) can also impact the results. The data will only be part of the story and will need to be understood in the context of external and internal influences.
Getting help in reviewing your equity plans
At Nua Group, our team of actuaries and data analysts works closely with our equity compensation experts to quantify the effectiveness and understand the success of their share plans. By understanding the value of the plan, adjustments can be made to potentially save money, reduce dilution and increase employee satisfaction.
To take the next step, get in touch with me at firstname.lastname@example.org.
About the author
Carine Schneider was a Partner at Nua Group. Carine was named one of the 100 Influential Women in Silicon Valley by the Silicon Valley Business Journal and one of 17 Women to Watch in 2017 by Brown Brothers Harriman Center on Women and Wealth. Carine is the founder of Global Equity Organization where she served as Chair of the Board for 18 years and is now Chair Emeritus. She is active in various women’s organizations and speaks at conferences around the world.