September 27, 2022 Executive Compensation Executive & Director Pay Design Reports

2021 Equity Grant Practices at IPO Addressing Equity Grant-related Issues

The IPO market is constantly changing. The challenges companies face to motivate and retain executives through a public offering amidst increasingly competitive markets for talent continue to mount.

2021 IPO Companies Broken Down By Industry

Our report covers 431 companies across all industries that had an IPO in 2021. This analysis identifies trends and examines how companies addressed the following equity-related issues leading up to IPO and at IPO: executive equity grant size and structure, dilution and overhang levels, initial equity pool sizing, and implementation of evergreen provisions. While the IPO market has cooled off in 2022 (56 IPOs through Q2 of 2022 vs 220 IPOs through Q2 of 2021), we observe that equity grant practices in 2022 have remained consistent with 2021.

Equity Grant Findings

Equity grant awards of any size to executives leading up to IPO are common practice (59% of companies grant equity to executives in the 12 months leading up to IPO). However, large “mega-grant” equity awards to CEOs (e.g., grants larger than 3% of CSO at time of grant) are uncommon in the market (~7% of companies offer these grants). Interestingly, our analysis also finds that equity grants to CEOs did not show notable variation in size as a percentage of common shares outstanding between founder and non-founder CEOs.

Equity Pools, Allocations, and Evergreen Provisions

Equity pools and allocations tend to be larger allocations in industries where equity is a more prominent element of pay – Health Care and Information Technology. Share pool allocations at IPO generally range from ~8%-10% of fully diluted common shares outstanding at IPO, and evergreen provisions are a majority practice in the market (63% of companies implement an evergreen prior to IPO).
 
This project and its analyses are conducted by Semler Brossy, with data provided by ESG data analytics firm ESGauge. See further details on our calculation methodology and definition of key terms on page 9. Reach out to us for more information on our data and methodology.

Download the full report.

Contributors

Todd Sirras

Kristofer O’Toole

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