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Equity-based incentives account for the largest portion of executive pay, yet they are often misunderstood, and misrepresented, by shareholders, the media and other stakeholders. The narrative surrounding executive compensation is often sensationalized and serves as a lightning rod, particularly during challenging economic periods when shareholders and employees alike are facing financial impacts. This narrative is largely based on the requirement to use valuation models to report the ‘fair value’ of equity-based compensation granted to executives, however, there can be substantial discrepancies between the reported value of executive compensation and the true ‘take-home’ value received by executives from these incentives. This report aims to decode the complexities of long-term, equity-based compensation by exploring the alignment between shareholder value creation and the realized value of equity instruments over a multi-year study period.
