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Multinational Companies Trending Away From One-Size-Fits-All Approach to Global Long-Term Incentives

Multinational Companies Trending Away From One-Size-Fits-All Approach to Global Long-Term Incentives

Aon Hewitt survey shows global companies designing LTI awards that are increasingly performance-based and modified to impact local participants

As the global war for talent heats up, multinational companies are increasingly looking for ways to differentiate themselves, including altering the way they design their long-term incentive (LTI) awards.

aonAon Hewitt’s Global Long-Term Incentives Policies and Practices survey of 191 global companies found that LTI programs have become increasingly local and performance-based:

  • 48 percent differentiate grant guidelines by specific global regions or countries–-double the amount from almost a decade ago (24 percent).
  • More than 60 percent of companies “tier” or design awards across global regions and countries to differentiate participant award sizes.
  • Almost 50 percent of companies outside the U.S. used performance shares and units, up from 38 percent almost a decade ago. Inside the U.S., that percentage increased to 69 percent in 2016, up from 52 percent.

“With moderate salary increases and limited bonus pools, LTIs have become an increasingly important part of total compensation,” said Derrick Neuhauser, leader of Aon Hewitt’s global long-term incentive and executive compensation practice. “Companies understand that modifying approaches by country and region make these awards more meaningful and competitive—which is critical as they look to recruit and retain talent internationally.”

Interestingly, companies are taking a different approach when designing LTI programs for the most senior executives: 73 percent treat senior executives as a single tier, where grants to executives are homogeneous regardless of global region or country.

“As the world becomes more global and mobile, executive responsibilities are increasingly extending beyond a single geographic region,” said KavitaMaharaj, senior consultant in Aon Hewitt’s global long-term incentive and executive compensation practice. “Companies expect a senior executive in Asia Pacific to be assigned and relocated to European operations, and they have designed their LTI awards in a way that can be easily aligned with worldwide business goals.”

Aon Hewitt’s survey also found many companies have modified their awards so that local participants can achieve tax advantages in their county similar to long-term capital gain rates for equity holders in the U.S. Almost one-third of the companies surveyed are making modifications to their award for tax-favored compliance for their participants, up from 7 percent almost a decade ago.

“The increase over the past 10 years is significant and consistent with our clients’ approach to global grants,” added Neuhauser.” Companies are trying to modify award to provide the best tax advantages for their participants.”

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