ExecComp Insights: The Truth About Concentration Ratios

Volatility and a declining stock market – particularly near the time of year when most executive grants are made – bring a whole new level of complexity to compensation committees and equity plan administrators. Often, the number of shares that an executive team receives will increase (and sometimes substantially increase) in order to keep the dollar value of grants constant (or nearly so) from the previous year.

But that increasing number of shares can lead to a few problems. Some companies, particularly those that have had sharp share price declines, can find themselves running into individual awardee plan limits, particularly in cases where performance awards are granted and committees must plan for awards potentially being earned at “maximum.” And at other companies, plan administrators see fewer awards available (under dilution, burn rate, or share reserve constraints) for non-NEO plan participants. And that can cause the proportion of awards going to the NEOs to increase.

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