More Companies Turn to Performance Shares

Many companies are turning to performance shares as a way to tie employee compensation to performance. Performance shares are stock awards given for performance over a two- to five-year period. Most plans pay out only when actual performance reaches 80% of the goal, with additional rewards for results above and beyond the target. Employers like them because they are very cost-effective and don't dilute stock like stock options. They are also tied directly to performance in two ways: Employees will want to perform individually to receive the shares, and they will also want the company to perform to increase the value of the shares. Accounting for these incentive plans is easier now that the cost is based on the fixed stock value at the grant date and does not need to follow share price changes. Another benefit is that share costs can be completely reversed if the performance targets are not met. (Workspan [Schmidt], July 2006, pp. 33-36)