More than 60% of large-cap companies provide at least half of CEO equity compensation through performance incentives, up from just one-third five years ago, according to a report on equity compensation trends recently published by executive compensation benchmarking firm Equilar.

The report’s findings, released on September 20, are based on an analysis of the Equilar 500, an index that comprises the largest U.S.-listed companies by revenue adjusted to approximate the industry sector mix of similar large-cap indices. The study examined the equity compensation design and granting practices of Equilar 500 companies, and tracked these data for those companies over the last five fiscal years.

The results of the analysis showed that the percentage of companies in the index that provided at least half of CEO equity compensation based on performance awards increased from 52.5% in the fiscal year 2015 to 60.8% in 2016; and that the total share of Equilar 500 companies providing CEO performance awards has increased significantly over the past few years, from 69.7% of companies in 2012 to 82.1% of companies in 2016.

According to the study, the remaining portion of equity compensation was time-based, which means that awards vest at specific time periods, rather than being contingent on meeting particular performance goals to become eligible to receive allocations of stock or stock options. The research indicated that most CEOs continue to receive time-based as well as performance awards, with nearly 40% of companies in 2016 providing a majority of equity compensation in the form of time-based awards. However, the study also found that a growing share of these time-based awards are being provided as restricted stock, rather than as stock options.

Broken down by sector, the analysis showed that 90.5% of industrial goods companies, 86% of healthcare companies, and 84.6% of utilities provided performance awards to CEOs in 2016. The technology sector saw the largest growth in the percentage of companies offering performance awards to CEOs during the study period, increasing from 63.7% in 2012 to 82.3% in 2016.

From Benefit Trends Newsletter, Volume 60, Issue 10

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2017 Liberty Publishing, Inc. All rights reserved.