The Spotlight: An Era of Change: Managing Equity Compensation in Uncertain Times

Published: February 2021

 

Spotlight, our regular Q&A with clients and colleagues, highlights leading viewpoints on trending topics in the world of human resources.

Dan Kapinos
Partner, Practice Leader of Equity Services,
Rewards Solutions

Managing Equity Compensation in Uncertain Times

Granting employees equity compensation is a complicated process, especially during periods of business uncertainty. There are countless points to consider, from developing a solid plan design to financial reporting requirements, balancing shareholder perspectives and educating plan participants. Each year, Global Equity Organization (GEO) recognizes the hard work of those top professionals around the world whose leadership and skills have fundamentally helped advance the global share plan landscape. We are pleased to announce that GEO has appointed Aon Partner Dan Kapinos, global practice leader of our equity services team, to a 2020 Fellow of Global Equity (FGE). GEO notes that Dan was chosen for his experience and knowledge, as well as the positive impact he has made on the global share plan community.
 
To tap into his expertise further, we recently had the chance to interview Dan and discuss key trends related to equity compensation – a challenging and extremely complicated topic in today’s volatile environment. Here’s what he had to say.

How has the current state of volatility impacted equity plans and plan design?

Like so many things in the last year, companies have seen equity values, either current or future, become very volatile, impacting employee compensation and retention. As a result, businesses have had to adapt, revisiting the structure of outstanding equity grants through potential modifications or moving towards more robust plan designs prospectively. To say it’s been an interesting time is an understatement. Our equity services team has gotten used to seeing companies make decisions, particularly at the executive level, to align with investors. This environment has created an even greater shift towards balancing the interests of both investors and employees, as evidenced by several companies expanding their equity programs to the broader population and revisiting plan design structures.

What are the biggest equity challenges firms are facing as we head further into 2021?

I think one of the biggest challenges companies using equity compensation have always faced is a lack of understanding by plan participants — which continues and is only magnified in this environment, whether your stock price has rebounded or not. As employees experience more volatility in their equity values, it’s always important to focus on education. Additionally, continuing to manage the uncertainty is another key issue. Most companies are using performance-based equity awards at the executive level, however, setting long-term performance goals at this point is very tough. You want a goal that is challenging, but also achievable. Understanding what that is in the current atmosphere can be quite difficult.

How has the equity services team helped companies optimize their equity plans during this time?

As always, we adapted to our clients’ needs in the face of a very unpredictable year, while also catering to the unique position of each company. We shared educational content for employees and other useful insights for free. We also developed new solutions to help companies solve relevant problems, including a service focused on assessing the probability of achieving goals in different economic states to help companies with their goal-setting process.

What's your top piece of advice for firms to effectively use and manage their equity plans?

When it comes to equity compensation, firms need to constantly balance the interests and needs of different stakeholders. Paying attention to investors is important, but so is understanding the employee experience. Companies spend millions every year on their equity plans and if employees ultimately do not comprehend or appreciate them, they can largely lose their impact on compensation and retention. So, whatever path forward is best for a company, I would always encourage clients to look at everything holistically and ensure the decisions, design and communication surrounding their equity plans balance all perspectives.

What is the biggest change you see coming to equity plans as a result of the pandemic?

This could be evaluated in a number of ways, but I will stick with the theme of balance. We’re seeing more companies re-evaluate their performance equity plans for executives to ensure there is balance and diversity in the metrics and goals. We’re also seeing companies ensure their equity plans are more robust and able to withstand volatility by still providing retentive value. Some firms are even considering the use of broad-based equity programs to pay more of the population in shares – an approach that has multiple benefits, especially in this environment.

To learn more about equity compensation and what to expect for 2021 and beyond, please visit: https://aon.io/equity.

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