Not a Member? Get access to HR news and resources that you can trust.
Here is how HR can help prevent the missteps that could cost your company big in court.
Is your employee handbook ready for the changing world of work? With SHRM’s Employee Handbook Builder get peace of mind that your handbook is up-to-date.
60+ new SHRM Seminar dates in 10 U.S. cities and virtually.
Expand your influence and learn how to become an effective leader -- Join us in Phoenix, AZ, October 2-4, 2017.
Most technology and life science companies report that they continue to offer long-term incentives to employees. However, the types of LTI plans used, the number of eligible employees, and the size of equity awards have changed dramatically in recent years.
Are Stock Options Losing Their Grip?
Historically, stock options were the LTI vehicle of choice, used by nearly all companies offering long-term incentives. However, the use of stock options has declined significantly over the past three years, with only 59 percent of companies now offering options to employees. Accounting rules requiring companies to expense options, backdating scandals and declines in the stock market have had a dramatic impact on the use of options and other types of LTI awards.
As the use of stock options continues to fall, the prevalence of other types of LTI plans is rising. Restricted stock (51 percent), performance-based LTIs (38 percent), stock appreciation rights (11 percent), and phantom stock (8 percent) are all gaining ground on stock options.
Table 1. Percent of Companies Offering LTI & Equity Compensation Plans
Type of Long-Term Incentive / Equity Plan
Percent of Companies Offering
Stock Option Plan
Non-Qualified Stock Options (NQSOs)
Incentive Stock Options (ISOs)
Restricted Stock Plan
Restricted Stock Shares (RSSs)
Restricted Stock Units (RSUs)
Performance-Based LTI Plans
Performance Cash Awards
Performance Share Awards
Other LTI and Equity Plans
Stock Purchase Plans (ESPPs / MSPPs)
Stock Ownership Plans (ESOPs / KSOPs)
Stock Appreciation Rights (SARs)
Unrestricted Stock Shares
Diversification of LTI Plans
Instead of using a "one-size-fits-all" approach, over half of the surveyed companies (53 percent) diversify their long-term incentives with a mix of different types of plans.
Only 17 percent use stock options as their sole long-term incentive, while 42 percent offer stock options with a mix of other types of LTI plans.
Restricted stock and performance-based plans have both gained popularity in recent years; however, only 19 percent of companies offer either of these types of plans as their only LTI option.
Table 2. Mix of Long-Term Incentive Plans
Combination of LTI plans (with stock options)
Stock option plan (only)
Combination of LTI plans (without stock options)
Restricted stock plan (only)
Performance-based plan (only)
Phantom stock (only)
Criteria to Determine LTI Eligibility
The most common criteria used to determine whether an employee is eligible for long-term incentives is job level. Individual employee performance, salary grade/level and job title are also frequently used as factors to determine eligibility for LTI awards.
Table 3. Criteria Used To Determine LTI Eligibility
Percent of Companies (respondents could select more than one response)
Salary grade or level
LTI Trigger Events and Award Frequency
The most common event triggering LTI awards is at the time of hire. Seventy-two percent of companies offer long-term incentives to newly hired employees. Although hiring someone may trigger an LTI award, eligibility requirements or waiting periods may apply.
The second most common situation to trigger an LTI award is an annual grant process. Sixty-two percent of companies grant new LTI awards as part of an annual grant process.
Table 4.Events Triggering LTI Award
Annual grant process
Recognition of outstanding performance
Meeting performance goals
Initial grant fully vested
While nearly three-quarters of companies offer long-term incentives at the time of hire (Figure 3), only 2 percent restrict LTI awards to only at time of hire (Figure 4). Most companies continue to grant new LTI awards to eligible employees on an annual basis.
Table 5.LTI Award Frequency
Percent of Companies
Only at time of hire
Every two years
Every three years
Alternatives to LTI Plans
Organizations without long-term incentive plans were asked to report what other rewards and incentives they use to attract, retain and motivate employees. The most common strategies for companies without LTI plans are to offer above-market benefits plans, non-cash awards/perks, and short-term cash bonuses/incentives).
Table 6.Alternatives to LTI Plans
Above market benefits plan
Non-cash awards & perks
Short-term cash bonuses & incentives
Above market base salary
W. Leigh Culpepper, CCP, GRP, CBP, is president and CEO of Culpepper and Associates Inc., which conducts worldwide salary surveys and provides benchmark data for compensation and employee benefit programs. Jeremy Greenup, CCP, is a research analyst at the firm.
Reposted with permissionSource: Culpepper Pay Practices & Policies Surveys, July 2008, www.culpepper.com
Data source:Culpepper Pay Practices and Policies Survey of 145 organizations, June-July 2008.
Breakdown by industry sector:Technology: 75%.Life sciences: 12%.Other industry sectors: 13%.
Breakdown by number of employees:Up to 100: 21%; 101 to 1000: 35%; 1,001 to 5,000: 26%; Over 5,000: 18%.
Breakdown by corporate status:Private 51%; public 46%; not-for-profit 2%; other 1%.
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Join SHRM's exclusive peer-to-peer social network
SHRM’s HR Vendor Directory contains over 3,200 companies