March 4, 2005 -- According to the PricewaterhouseCoopers Trendsetter Barometer, a survey of 355 of the nation's fastest growing U.S. businesses, 91% of surveyed companies say they offer some form of incentive-based compensation for their employees, with 89% of respondents saying that they use cash. Only 28% of CEOs said they rely on equity-based compensation.
The study found that 80% of the CEOs surveyed offer compensation like cash or stock options because they face increasing competition to recruit top executives and employees. "Of necessity, private companies have become increasingly creative with incentive-based compensation," said Rich Calzaretta of PricewaterhouseCoopers' private-company practice. "Cash-based incentives are a staple, with equity-based incentives most often added if a liquidity event is planned."
The study found that most companies rely on cash to recruit top executives unless they are nearing a liquidity event -- like a sale or Initial Public Offering. Of the companies surveyed, 66% said they were planning on staying private, while 20% reported that they were headed to a sale or IPO.
According to the study, 92% of companies that offer equity-based incentives offer their employees stock options.
"Companies planning to stay private generally don't grant equity, whereas most moving toward a liquidity event do," said Carl Weinberg, also with PricewaterhouseCoopers. "But companies granting equity tend to not permit cash-out until the liquidity event occurs. The employees must wait for their payoff, just like the owners."