The “Stub Period” Challenge
Relative Total Shareholder Return (RTSR) awards are the most prevalent type of performance awards in the global marketplace. The accounting fair value under ASC Topic 718 for RTSR awards is estimated using Monte Carlo simulation that reflects all known information as of the grant date, which often occurs several weeks or months into the TSR…
Relative TSR Plan Design Checklist
Performance shares earned contingent on a performance metric of Relative Total Shareholder Return (RTSR) is the most prevalent metric seen globally. However, the design of a RTSR plan can be quite challenging if not done appropriately. The checklist below is intended to provide a high-level summary of the design process, and some of the considerations throughout the…
Don’t Let International Peers be Foreign to You
Performance shares earned based on Relative Total Shareholder Return (RTSR) are the most prevalent form of performance equity in the global marketplace. Selecting appropriate peer companies has always been a critical aspect of RTSR plan design, and as more companies compete globally, a greater number of companies are selecting international peers. The inclusion of international…
Alternative Types of RTSR Plans
Once a company decides that it is going to grant performance shares contingent on Relative Total Shareholder Return (“RTSR”), one of the initial plan design considerations is the “classification” of RTSR plan you are considering, of which there are generally three: Each of the classifications have their own pros and cons, which we have summarized…
Outperform Slopes in a Relative TSR Plan
Performance shares earned contingent on a performance metric of Relative Total Shareholder Return (“RTSR”) is the most prevalent globally as seen in the marketplace. There are several forms in which a Relative TSR plan can be designed (for example, a percentile rank plan or an outperform plan), as seen in the Alternative Types of RTSR…
TSR Calculation – Best Practice
Section 1 – TSR Calculation Considerations One of the benefits of using Relative Total Shareholder Return (“RTSR”) as a performance metric is the transparency of the calculation. It is based on empirical stock price data which is published daily from many different objective financial data sources. Nonetheless a wide variance of methodologies for calculating Total…
The Grant Sizing Challenge
Once your organization decides that it’s going to grant performance shares contingent on Relative Total Shareholder Return (“RTSR”), one of the first and most impactful decisions is how you’re going to determine the “target” grant size. Generally, there are three (3) broad methodologies for doing so: Methodology 1: Share Price – The current share price…
Design Levers to Lower the RTSR Fair Value
Performance shares earned contingent on a performance metric of Relative Total Shareholder Return (RTSR) is the most prevalent globally as seen in the marketplace. Performance awards that are contingent on Relative TSR are deemed market conditions and will generally require a Monte Carlo simulation to determine the fair value under ASC718. Unfortunately, the fair value…
Multiple Performance Metrics
Performance shares earned contingent on performance metric of Relative Total Shareholder Return (“RTSR”) are the most prevalent in the global marketplace. Further, recent studies show that an average of 2.1 different metrics were utilized in the typical CEO performance plan in 2018. However, there are distinct approaches for incorporating multiple metrics into a long-term incentive…
