Managing Equity

March 10, 2017

The Issue                                                                                                

Over the last several years, shareholder advisors have been continuously squeezing dilution caps. No doubt, most companies feel as though they are constrained in their use of equity. Using too much equity provides strong attraction, retention, and alignment incentives, but gives away so much of the pie that shareholder returns are negatively affected. Conversely, using too little equity does not create a strong enough employee value proposition, nor does it provide compelling incentives to drive value. So, where is the right balance and how can companies make the case that their share authorization request is “just right?”

Farient’s Point of View

Farient’s professionals have always thought of equity as having a real cost to shareholders, even before it was recognized on the income statement. Additionally, we have always regarded equity as a scarce and valuable resource. As a result, we have always considered it critical for clients to strike the right balance between spending too much or too little, and to not misallocate resources to places where it was not needed or appreciated.

How Farient Can Help

Farient has a strong history helping companies actively manage dilution. Specifically, we help our clients:

  • Structure equity programs to provide flexibility in using vehicles and shares
  • Determine overall equity authorization and spending strategies over multi-year periods
  • Help our clients segment the employee population, identify position levels, job families, critical skill areas, individual performance, geographies, and other attributes to attain more efficient equity allocations
  • Build cases for shareholder advisors and shareholders for why a recommended level of equity dilution makes sense
  • Build performance-based plans that help flex equity usage with performance


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