5 Ways COVID-19 Is Affecting Equity Plans (and 1 Way It Isn’t)

The NASPP conducted our second survey on the effect of COVID-19 on equity programs in October. Here are six things we learned from the survey.

Don’t have time to read this blog entry? Check out the latest episode of my Equity In Brief video series—I hit the highlights from our October COVID-19 quick survey in under four minutes.

1. More stock prices are up than down.

In our April quick survey, over 90% of respondents reported that their stock price was down compared to February. Since then, many companies’ stock prices have experienced a recovery. In our October quick survey, only 37% of respondents report that their stock price is more than 10% lower than it was in early February (before the markets took a dive); 39% report that their stock price is more than 10% higher (the remaining 24% of respondents report that their stock price is within 10% of its February value).

Given this, it is not a surprise that the percentage of respondents concerned about replacing lost award value has declined from 47% in the April survey (the top concern among respondents) to just 24% of respondents in the October survey.

2. Employee retention is the top concern, followed by goal setting for future grants.

Employee retention is the top concern in the October survey, with 47% of respondents selecting this as one of their top three concerns. This is in contrast to the October jobs report from the Bureau of Labor Statistics, which shows that, although unemployment decreased slightly from September to October, the number of Americans unemployed is still around 11 million—about twice the amount unemployed prior to the pandemic (“Economy Added 638,000 Jobs in October as Growth Slows,” Washington Post, Nov 6). Based on our survey, unemployment hasn’t affected all segments of the US economy equally.

If employee retention is a concern for you, check out my September 22 blog “Using Data for Better Employee Retention: 5 Things to Know,” which discusses how using more holistic data around employee turnover along with statistical modeling can help companies make better decisions about retention grants.

Goal setting for future performance awards was the second most common concern among respondents, with 42% indicating that this is one of their top three concerns. Handily, the NASPP’s December webcast, “Rethinking Next Year’s Equity Awards,” will help our members address these concerns.

3. Below target payouts and forfeitures are expected; target adjustments are still on the table.

Among respondents that have a performance cycle closing with the end of the current fiscal year, 33% expect the awards to pay out below target and another 12% expect the awards to be forfeited. Only 40% of these companies have already made a decision not to modify their targets. Of the remaining 60%, about half are not yet actively considering adjustments (but haven’t ruled them out) and half are somewhere in the process from considering or planning adjustments to already having made them.

4. ESG targets are under consideration for 2021 grants.

Only 2% of respondents currently tie vesting in their performance awards to environmental, social, or governance targets but 33% are considering and 5% are planning this for the performance awards they will issue in 2021. It remains to be seen whether the 33% in the consideration phase will move forward with this practice next year, but given shareholder and political pressures on this issue, I expect that it is only a matter of time before most companies are forced to reckon with ESG goals.

Other approaches for 2021 performance grants that are most commonly being considered include increasing compensation committee discretion over award payouts (16% considering, 4% planning), annual growth rate targets (17% considering), and setting annual goals at the start of each year in the performance period (also 17% considering). The latter two approaches are discussed in the feature article, “Designing Equity Awards for Market Volatility,” in the Spring 2020 issue of the Advisor.

5. Using multiday average prices to size grants may be taking hold.

In early October, I blogged about “2 Reasons Multiday Averages Make Sense for Grant Sizing.” Based on the results of our quick survey, I’m not alone in thinking that this is a good approach for translating the dollar value of an award to a number of shares. Just over a quarter of respondents already use this approach, 3% started using it this year, and 12% are considering or planning on using it for future grants.

6. Payroll taxes aren't going on holiday.

The overwhelming majority of respondents (96%) are not deferring collection of Social Security tax as is permitted under the payroll tax holiday declared by President Trump.