Friday, July 01, 2011

Perfecting Perception: The Behavioral Economics Approach to Equity

At the NASPP's Silicon Valley Chapter Annual Conference last week I participated on a panel titled Perfecting Perception:  Understanding Perceived Value; What It Means for Your Stock Program.  The discussion, moderated by Emily Cervino of the CEP Institute with Keith Pearce of Intel and Jason LeBovidge of Fidelity, covered several approaches to the issue.

And what is the issue?  It's that a significant proportion of equity compensation program participants - maybe half or more - don't understand what they've been granted, don't consider the equity as part of their "compensation" for their job, and then not surprisingly don't work any harder or any smarter because of the grants.

If that is true, we have a serious problem, because companies spend millions and billions of dollars in expense and dilution on these programs and should expect a positive return on investment (ROI).  How do we fix this?

A lot of the discussion is around communication but I think there is a serious plan design component to this as well.  My portion of the panel drew primarily on the research and analysis I did for my book chapter in Global Equity Organization's GEOnomics 2009, "Behavioral Economics and Equity Compensation" (with co-author Kiran Sahota).

I'll be doing a two-part webcast on this topic for GEO in September and October that will take the discussion further.  Stay tuned.