According to one of the leading high-tech executive search firms equity plans for top positions lay out as follows

• Proven CEO's can be on track to accumulate 10% of the company. Generally in the form of options vesting over several years. Vesting is tied to continued service. Additional option shares may be tied to performance.



• An up-and-coming CEO with a high probability of success can be similarly on track to accumulate 5%.

Discussions with leading compensation experts reveal the following insights regarding annual option awards:

• Options are awarded annually to employees who contribute to the firm's growth.



• The trend is to grant options at lower and lower levels of the organization. It is common for the top 5% of employees to receive options. For example, at Pepsi in 1996, this meant everyone with a base salary over $70K.



• The vast majority of employees exercise their options and sell their shares immediately upon vesting.



• To moderate dilution, companies routinely buy back their own stock.



• Options generally vest over 3-4 years and this is trending to lengthen.



• Options generally have a term of ten years.



• The number of shares awarded to top players annually is generally a function of level and base salary as follows:



• Annual number of Shares Awarded = ((Percent of Base) * (Base Salary))/(Stock Price @ date of grant);
• Where Percent of Base is set by level-title; e.g., the Percent of Base might be set to 500 for the CEO, 425 for EVPs, 395 for SVPs, 250 for VPs, down to 30 or 40 at the low end. See this table for an example of how this works.



• Front-end loading is popular with companies who are confident that their stock will trend up over the term. Calculate the shares to be awarded over the next three years for an individual and then award them all at once, up front. This has some key benefits:



• The employee gets the award early (and hopefully at a better price) and
• The company gets to give shares out at the current rather than the future salary



• Some companies award a separate block of options upon promotion to Vice President and these shares vest over a longer period, e.g., 7 years.