Has Share-based Compensation Entered the "New Normal" Too? - 28 Apr 2011

The Great Recession caused many finance
professionals to reexamine their views of risk and return, and even led
some prominent investors to declare a “new normal,” which is generally
characterized as a period of low growth and low returns. The new normal
has broader applicability as well. Many argue that much like the Great
Depression, the financial crisis of 2008 and 2009 led to a paradigm
shift in the way average Americans lead their lives.

It is within this spirit of
reexamination and the new normal that we analyze the trends in current
practices in share-based compensation. In our valuation practice, we
encountered with increasing frequency over the course of 2010 reporting
entities that required assistance in the measurement of complex
share-based payment awards. These awards were not the plain vanilla
time-based vesting stock options of the past, but rather grants of
performance awards (e.g., restricted stock or stock options with
performance and market condition vesting requirements).

The goal of this article is to
investigate whether the new normal has permeated share-based
compensation practices. The specific analytics performed and discussed
herein are largely a refresh and extension of an article published by
Stout Risius Ross, Inc. (SRR) in the Spring of 2007 (Trends In SFAS
123(R): Is the Black-Scholes Model Still King?).

To this end, we reviewed public filings
for each component corporation of the S&P 500® Index in order to
analyze the variety of share-based payment awards granted. We also
investigated the valuation methods and inputs reporting entities
disclosed with respect to the fair value measurement of share-based
compensation. The current data (compiled in October 2010) was then
compared to the data compiled in November 2006 in order to analyze
trends and changes that may have occurred over this volatile time
period.¹

Our recent review of share-based
compensation practices confirmed a number of our expectations following
the review performed in 2006, and introduced several new observations.
The results indicate that the new normal applies to share-based
compensation. Our findings illustrate that share-based payment awards
have become a larger component of total employee compensation. Moreover,
while stock options are still the most widely used form of share-based
compensation, there is an increasing trend for companies to

more (several interesting charts):  http://bit.ly/kYUpZd