American companies are changing their equity-based employee compensation plans by adopting and expanding restricted equity award and performance share programs, according to research from Greenwich Associates.
Firms have begun to scale back on existing stock option plans after the Financial Accounting Standards Board revised its rules on the reporting of equity-based employee compensation plans, requiring that options be expensed at their fair market value.
Forty-five percent of participants say they have decreased their use of options as a result of the rule change.
The shift away from broadly issued options to restricted award programs was already underway before the implementation. “Since 2000, stock options have failed to perform up to expectations as companies found that awarding them on a broad basis had little positive influence on hiring or employee retention,” says Greenwich Associates consultant Lori Crosley.
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