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Article | Executive Pay Memo North America

Trends in S&P 500 share utilization

By Amelia Serrano | September 21, 2022

S&P 500 experienced decreases in overhang and run rate, while the trend of increasing the number of full-value awards granted slightly dropped.
Executive Compensation

Companies monitor stock plan usage and reserve pools to ensure equity incentive plans support business objectives. Understanding these issues is critical as companies continue to address employee reward and retention concerns. To assess recent equity compensation trends the Global Executive Compensation Analysis Team (GECAT) reviewed the most recent five years of S&P 500 overhang, run rates and long-term incentive (LTI) fair values for fiscal years 2017 to 2021, the most currently available full year of data as reported in calendar year 2022.

Key findings from the GECAT S&P 500 study include:
  • The use of options continued to decline to 55% in the current year, down from 63% at the onset of the study, while the use of performance awards increased slightly to 61% (from 59%).
    • Equity compensation mix changed the most for the energy sector since the first year of review, with the mix of restricted stock increasing to 80% (from 66%), the mix of options halving (from 14% to 7%), and performance awards reducing by more than a third (from 20% to 13%). It is not surprising the energy sector reverted to using a higher percentage of restricted stock to address the pressing issue of retaining key employees.
    • Performance-based stock usage was highest in the utilities sector (54% of LTI mix).
    • Stock option usage was highest in the industrials sector (21% of LTI mix).
  • Median overhang continued its downward trajectory to 6.0% in the current year, down from 7.4% in the first year of review.
    • Although slightly lower than the prior year, the healthcare sector once again had the highest overhang rate at 8.3%. Even though its average LTI mix was only 19% options (65% restricted stock and 16% performance awards) in the current year, 65% of all outstanding awards in the healthcare sector are composed of options. It’s important to note that these outstanding options are a legacy of an industry-wide shift away from the practice of granting options and overhang will continue to drop as these shares are exercised.
    • The utilities sector continued as the sector with the lowest overhang rate at 2.6%, slightly higher than the prior year.
  • Median run rates have declined 25% over the period of review, coinciding with a reduction in the use of stock options. This decline aligns with the 16% decrease in the number of total equity granted over the prior year and a 9% decline over the most recent five-year period.
    • The materials sector experienced the most significant run rate decline of 36% over the five years in the study.
  • As stock prices increase, companies granting shares based on a dollar value may adjust their plans and grant less equity. This is evident in the fact that although run rates are declining, LTI fair values have increased since the first year of review, even after a slight 1.3% decrease in year-over-year figures in the prior year.
    • The highest median LTI fair value increase once again occurred in the communication services sector, which increased 122% over the initial year of review. One contributing factor was average stock prices more than doubled, increasing 107% over the same time period (versus the S&P 500’s 87% increase).
    • The healthcare and real estate sectors experienced a 21% and a 76% increase in median LTI fair value, respectively. Their average stock price increases over the five-year period of review were 102% and 62%, respectively.
  • The percentage of companies requesting shares to fund stock incentive plans increased to 16% in the current proxies (up from 14% in the initial year of review), and the average number of shares requested also increased to 3.9% (from 3.5%) of common shares outstanding.
    • Companies in the information technology sector accounted for 25% of those that adopted new/amended equity plans.
94% of prior year's 6.4% overhang

Run rate
83% of prior year's 0.62% run rate

LTI fair value
109% of prior year's $99.9M LTI fair value

LTI fair value % of market capitalization
105% of prior year's 0.38% LTI fair value % of market capitalization

Figure 1. S&P 500 — fiscal year 2021 share utilization median figures at a glance

For the complete report on companywide equity compensation practices and trends from the S&P 500 for fiscal years 2017 to 2021, please download the PDF (below).

Measuring annual stock usage

Although median run rates experienced a 5% increase in 2019 over 2018 figures, they continued an overall downward trend since the study’s onset and decreased 17% in the current year to 0.51% of average common shares outstanding. Median run rates in the current year represent a 25% decrease from the high-water mark 0.69% of average common shares outstanding noted in the first year of review. The materials sector saw the greatest decrease (36%), from a 0.50% run rate to 0.32% in the current year. The financials and real estate sectors were the only sectors with a run rate increase over the five-year period of review. The highest increase of 20% was seen in the real estate sector, which saw its run rate increase from 0.20% to 0.24%.

Overall stock plan inventory

Companies that require additional shares to fund their stock grant practices need to request shareholder approval to allocate additional shares to their equity plans. The number of companies requesting shares has trended downward over the last three fiscal years. A reduction in awards granted and performance award modifications or cancellations during times of less-than-ideal performance outcomes may have attributed to such companies having sufficient awards to continue their grant practices without the need to request additional shares.

Looking ahead

After more than a decade of positive market returns and relatively stable market volatility, we consider how companies could mitigate share usage concerns in an era of increasing volatility and through a protracted bear market environment where shareholder approval for new plans, or additional shares, will likely face additional scrutiny around costs and alignment.

A substantial or prolonged market retraction would significantly affect retention, equity compensation strategy and business results for those companies underperforming peers. A reduced outstanding equity value can create retention concerns all on its own, but talent flight becomes a substantial risk when your company is underperforming, as its buyout value becomes relatively cheaper and the costs and efforts to replace talent have a further drag on business results. Special or one-off retention awards will likely become more prevalent among companies but selective among the employees being rewarded. Changes to overall equity grant strategy or supplemental equity grants will also require increased communications through employee education and shareholder outreach.

It is crucial that companies continually monitor their equity compensation program to ensure these are competitive and help retain and motivate key employees. We will continue to monitor and provide timely updates of equity grant practices.


Senior Associate, Executive Compensation and Board Advisory (Houston)
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