Concord, MA, Oct 17, 2006

The study revealed several significant trends:

• More than 65% of public companies and 20% of private companies surveyed are reducing their equity compensation awards in 2006. They are cutting the number of options awarded by approximately 30%. These changes are due to the increased costs of expensing stock options under federal regulation FAS 123R, growing pressures by the board of directors to reduce shares to employees and managers, and the perception that stock is not sufficiently valued by employees.
   
• Stock reductions are mostly impacting mid-level managers, professionals and lower-level staff within the organizations. Over 50% of the firms are reducing or eliminating awards to these groups of employees. Less than one-third of the companies are decreasing stock options to executives, and these companies are typically converting stock options into restricted stock awards.
   
• The study uncovered a contradiction between stated corporate goals, and practices in how companies are using equity compensation. Despite the focus on performance, most companies are implementing changes to equity plans that do not encourage or reward results. Companies are converting options into time-based restricted stock or restricted stock units that provide shares based on continued employment. Additionally, the survey showed that 45% of the companies are decreasing equity awards to their top performers and high-potential talent.
• Companies also are reducing equity awards to new hires, those in “hot jobs” and expatriates.
   
• Forty-three percent of the companies are changing their Employee Stock Purchase Plans. They are typically reducing the discount employees receive for purchasing company shares to minimize the expenses associated with FAS 123R compliance.
   
• Reductions in equity compensation are NOT being offset by increases in other types of compensation to most employees. Fifty-eight percent of companies will not be changing their variable cash compensation programs to address changes in equity pay. This indicates that equity compensation programs are not being integrated into the strategic priorities of companies.
   
• The study provides detailed data on companies in several industries: technology, financial, services, consumer, bio- tech/pharmaceutical, and manufacturing. Over 80 % of the technology companies, which have used equity compensation more extensively than their counterparts in other industries, are decreasing their use of stock options, while 67% of consumer and manufacturing companies and 25% of financial service companies are reducing their use of equity plans.

“While the study provides a benchmark of current equity practices among mid-sized firms, it also identifies an opportunity for strategically oriented companies to stake out a competitive advantage in this area,” said Tom Wilson, president, Wilson Group. “Firms that buck market trends and focus on aligning their equity compensation with strategic corporate goals will stand out in the marketplace.

“Additionally, there are other implications from the study’s findings that companies need to consider: Will reducing equity awards negatively impact efforts to recruit and retain key talent? When it comes to equity compensation, companies should know what others are doing in the market and, at the same time, develop a framework that maximizes the value of their more limited equity. This will enable them to reinforce key strategies to improve their competitiveness for people and for business,” Wilson added.

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Changes in Equity Compensation for 2006-2007.