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« News And Views On RSUs: Broad-Based Grants, Bankruptcy Court Case, And Survey | Main | T+2 Is Here: What It Means For Stock Compensation »

11 September 2017


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So many potential comments here...I will try and stay high level

TSR: Not a great stand alone goal. Never has been and it was only pushed by math experts who saw the predictability in accounting consequences while ignoring the behavioral economics impact.

Undefined metrics. This is usually done to provide some form of unmonitored discretion. Not a great habit, but also not a common one.

a TSR plan that pays out 80% of Target when performance in the bottom 20% of peers. 1) We do not know if the grant size was intentionally small to make up for this pseudo-guaranteed payment. 2) We do not know what the upside potential or curve was. Perhaps the entire award was small and the TSR goal was really a nod to performance units, while the company was trying to transition from time-base RSUs. 3) Perhaps the company had never been above last place and even one step up the ladder was a measurable improvement.

We try to paint executive compensation with one big brush. When we do that only the lucky win.

On the flip side of this is the fact that Performance Units often do work well. Yes, they require more effort, but as one CEO told me, "Just because it's hard doesn't mean we shouldn't do it."

These awards require planning, commitment, communication, more communication, honesty, integrity and a human factor.

the challenge of performance share plans is the many design variables and modeling required vs "plain" vanilla stock options; good in concept, hard in execution. Data has shown that these plans have increase exec payouts relative to shareholder return as a faster rate than options would have due to the many design challenges. Data also has shown that RTSR plans have been the worst plan design ever from a shareholder perspective, yet the most common plan in practice today. Too much "me too" in the Compensation and Board worlds.

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