The value of equity compensation: delivering on the best of intentions

Many publicly traded companies deliver equity-based compensation to their executives on an annual (or bi-annual) basis after a fairly intense "packaging" process. Defining and measuring the effectiveness of an equity program is not a simple task. The reasons for even having an equity program may vary within and across organizations, from executive retention to competitive necessity to capital accumulation. Recently the authors assisted a company that sought to understand the effectiveness of its equity program -- more specifically, to determine the relationship between the "intended value" and "actual value" of grants made to its Chief Executive Officer over time. Understanding the effectiveness of your company's equity plan -- in promoting a compensation philosophy and in motivating employees -- is a challenging but valuable endeavor for both shareholder approval and executive motivation and retention.