Dana Whitfield· Director, Global Compensation, Meridian Health Systems
Asked in Executive Compensation ·
Canadian listed consumer goods company, C$6bn market cap. We are close to appointing a chief executive from a larger US competitor. She will forfeit unvested equity that her advisers value at US$14m.
That figure assumes all her performance awards vest at target. Her current employer's last two cycles paid 60% and 45%. Our committee wants to replace what is lost, like for like, and not a dollar more, but the two sides are a long way apart on what was actually lost.
How have others valued the forfeited awards, and how did you structure the replacement?
0 reactions · 4 replies · 4 views
Accepted answer· by James Okafor
A way to close the gap without arguing over the discount: replace the performance awards with performance awards. We granted face value equal to her target number, but under our own plan with our own conditions. If we perform she receives the full amount, if not she receives what our other executives receive. Her advisers could not easily object, since they had been arguing the awards were worth target. And the committee could tell investors that only the time-vested portion, about 40% of the total, was guaranteed.
Read in the conversation ↓
Nadia HaddadCRP
Director of Rewards, MEA, Qasr Holdings
We asked for the award agreements and the latest performance tracking, under a confidentiality letter, and valued each tranche separately. Time-vested shares at face value. Performance awards at the tracking level where there was less than a year to run and at the three-year average payout where there was more. That took the number from 11 million to 7.5.
Priya RaghunathanGRS, CSI
Head of People Analytics, Calibre Software
Mirror the vesting dates. Each replacement tranche should vest no earlier than the award it replaces would have. Ours were all in shares, none in cash, and repayable in full if she resigned within two years. Disclosed tranche by tranche with the valuation basis, we had no adverse comment at all.
James OkaforCRP, CEP
VP, Total Rewards, Halcyon Financial Group
Accepted answer
A way to close the gap without arguing over the discount: replace the performance awards with performance awards. We granted face value equal to her target number, but under our own plan with our own conditions. If we perform she receives the full amount, if not she receives what our other executives receive.
Her advisers could not easily object, since they had been arguing the awards were worth target. And the committee could tell investors that only the time-vested portion, about 40% of the total, was guaranteed.
James OkaforCRP, CEP
VP, Total Rewards, Halcyon Financial Group
The performance-for-performance route is neat and I think gets us there. We will combine it with mirrored dates on the time-vested part. One open point is currency: her awards are in US dollars and our shares trade in Canadian. We are planning to convert at the rate on the day she signs.
