Many Compensation Consultants Ignore Research Supporting Broad-Based Equity Plans

A frequently repeated and never-documented claim by many compensation professionals is that broad-based equity plans don't work. Writing in the May issue of Workspan, the magazine of WorldatWork, for instance, Steve Broadbent and Tom Chisolm of Clark Consulting state that "there is no empirical data linking the use of broad-based, equity-based grants below the top-tier of executives to a company's performance." A quick Google search would have shown these experts how inaccurate that statement is. There is, in fact, ample evidence linking broad-based equity grants to improved corporate performance, while equity grants to top executives produce at best mixed results.

It's hard to say whether the continuing bias is the result of simple ignorance, a self-serving desire to tell executives (who pay compensation professionals' bills) that only executives matter, or a too-facile assumption that individuals below top executives rarely affect how the company does. The continued existence of this bias, however, remains a major barrier to more progress on broad-based grants.

In a refreshing break from this conventional wisdom, the Global Equity Organization's recent annual conference in San Francisco featured keynote speakers (a leading member of corporate boards and a venture capitalist) who strongly backed broad-based equity programs, citing extensive research on their effectiveness. The theme was picked up at other conference sessions as well.