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Meridian Compensation Partners Study Reveals Rate at Which Large Companies are Granting Equity Incentives

LAKE FOREST, Ill.--(BUSINESS WIRE)--Meridian Compensation Partners, a leading executive compensation and corporate governance consulting firm, has released a new study of annual “run rate” and “overhang” levels among Fortune 100, 250, and 500 companies. Meridian found the median annual run rate for Fortune 500 companies was 1.5% and the median three-year average run rate was 1.6%. The median total overhang at these organizations was 12.0%.

“The appropriate balance of competitive equity incentives for employees and reasonable share dilution that keeps both employees and shareholders satisfied is important to get right. Board of directors must remain vigilant in reviewing the annual cost of equity incentives.”

Fortune Companies  

Median
Annual Run
Rate

 

Median Three-
Year Annualized
Run Rate

 

Median Existing
Overhang

 

Median Total
Overhang

Fortune 100 1.5% 1.6% 6.8% 11.7%
Fortune 250 1.5% 1.5% 5.9% 11.5%
Fortune 500 1.5% 1.6% 6.2% 12.0%

Run rate measures the rate at which a company is using its shares as incentives under its shareholder-approved equity plans. The higher a company’s run rate, the earlier it will need to seek shareholder authorization for an increase in its share pool. The median run rates are up slightly for Fortune 100, Fortune 250 and Fortune 500, as companies continue to shift from granting stock options to full value shares. A company’s overhang is the aggregate of equity awards currently outstanding plus authorized but unissued shares approved by shareholders, as a percentage of fully diluted weighted average common shares outstanding. Higher overhang results in greater potential dilution to which existing shareholders are exposed. The median total overhang are up for Fortune 100 and Fortune 250, but slightly down for Fortune 500.

“Companies have become increasingly concerned about managing their equity incentive programs and spend closer to competitive norms specific to their size and industry,” explained Gerard Leider, partner at Meridian. “The appropriate balance of competitive equity incentives for employees and reasonable share dilution that keeps both employees and shareholders satisfied is important to get right. Board of directors must remain vigilant in reviewing the annual cost of equity incentives.”

Meridian’s analysis was based on data collected from annual report (Form 10-K) filings through June 2013. In addition to calculating the median run rates and overhang levels, Meridian measured annual run rates and overhang levels at the 25th and 75th percentiles. Among Fortune 500 companies, Meridian found the annual run rate at the 75th percentile was 2.4% and total overhang was 16.0%.

“Annual run rate and overhang levels do vary significantly by industry,” added Leider. “Given all the variances, companies should consider benchmarking their annual run rate and overhang levels in relation to companies within their specific industry peer group.”

Among the 21 industry groups examined by Meridian, Technology, Hardware and Equipment companies had the highest median total overhang of 17.2%, followed by Health Care Equipment & Services at 16.1%. Utilities and telecommunication services had the lowest median total overhangs of 6.2% and 6.6%, respectively. The median overhang levels of the 21 industry groups examined by Meridian are down somewhat from historical levels for most groups.

About Meridian Compensation Partners, LLC

We are independent executive compensation consultants providing trusted counsel to Boards and Management at hundreds of large companies in North America. We consult on executive compensation and its design, amounts and governance. Visit us at www.meridiancp.com.

Contacts

Meridian Compensation Partners, LLC
Gerard Leider, (847) 235-3606
Partner
gleider@meridiancp.com
www.meridiancp.com