2024 Aggregate Share-Based Compensation

We are pleased to present our fifth study of aggregate share-based compensation. Our research focused on 300 companies spread across five industry groups and divided equally among small-, mid- and large-cap segments. This report covers the three-year period from 2021 to 2023, and includes the following:

• Company-wide annual grant rates, measured based on annual share usage and fair value transfer.
  • Annual share usage is the number of shares granted during a given year as a percentage of weighted average basic common shares outstanding.
  • Fair value transfer is the aggregate grant date fair value of all long-term incentive awards granted during a given year as a percentage of company market capitalization value at grant and as a percent of revenue.
• Overhang, measured based on potential share dilution as well as the fair value of outstanding grants.
• Frequency and prevalence of long-term incentive plan share requests.
• Allocation of long-term incentive pools to the CEO and other proxy officers (“Top 5”).

Analyzing FVT in relation to company market capitalization and revenue helps organizations evaluate the financial impact of their share-based compensation plans. With this data, companies can make informed decisions about structuring equity-based incentives that attract and retain top talent, while effectively managing shareholder dilution and fostering long-term financial stability. Additionally, proxy advisory firms evaluate a company’s historical grant practices and overhang levels when assessing whether to recommend shareholder approval for new share pool requests.

The key findings of our 2024 aggregate share-based compensation study are shown on the following pages.

Annual Fair Value Transfer (Grant Date Fair Value as % Market Capitalization at Grant)

Annual FVT rates as a percentage of market capitalization were slightly lower compared to our prior 2020 study, with the median 3-year average annual rate decreasing from 0.92% in the prior study to 0.87% in the current study
Median FVT rates increased slightly for 2022 and 2023 compared to 2021.
For 2022, median annual FVT grant values increased at a higher rate than median market capitalization, which contributed to the increase in FVT as a % of market cap. For 2023, FVT grant value and market capitalization declined slightly compared to 2022, resulting in FVT as a % of market capitalization remaining relatively consistent.

Overhang

Potential dilution from outstanding equity awards has trended downward over the last three years, falling from 3.0% at the median in the prior study to 2.7% in the current study.  Continues a trend observed over the previous four studies.  Driven by companies granting a greater proportion of equity awards in the form of restricted and performance shares, which generally use fewer shares than stock options for equivalent grant value and remain outstanding for far shorter periods of time.

Allocation of Long-Term Incentives

Allocation of long-term incentive pools to the Top 5 proxy-reported officers (including CEO) is closely linked to company size, as small-cap companies grant a significantly higher percentage of the overall pool to their top officers compared to largecap companies, who generally have more long-term incentive participants. Technology companies continue to have the lowest concentration of awards granted to the Top 5 proxy-reported officers (including CEO), reflecting traditionally broadbased equity participation in this industry.

Share Requests

Over the last three years, 53% of our sample companies sought shareholder approval of a new share authorization under employee stock plans.  Compared to the 2020 study, the prevalence of share requests decreased from 58% to 53%, which is aligned with the decrease in FVT over the same period.  The median size of the requests ranged from 3% to 4% of common shares outstanding, with slight variation based on company size and year of request.

Link to the full report can be found here.