Hold. Flip. Split Acrobatics of Employee Ownership

Transcription

1 Hold. Flip. Split Acrobatics of Employee Ownership Alice Chang, First American Financial Corporation Carolyn Belamide, Trimble Navigation Limited Mike Alicea, Fidelity Stock Plan Services

2 Agenda Company Profiles Employee & Issuer Analysis Issuer Considerations -2-

3 COMPANY PROFILES -3-

4 About First American Financial Corporation First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services Annual Revenue Key Statistics $5.2B Total Employees 17,955 Employees Receiving Equity Award Types: Stock Options Restricted Stock Units Performance Employee Stock Purchase Plan 700 No (last grant in 2013) Yes Yes (Section 16 only) Yes -4-

5 First American Culture & Grant Practice 125 year-old company with a family feel Named one of FORTUNE s 100 Best Companies To Work For in 2016 Won Best Place to Work in 12 locations across the country High employee engagement score (86%) on company survey 37% of employees have a tenure of 10+ years with voluntary turnover of 6.1% Prior to 2014, only officers, senior management, and employees with total compensation of $250K or more received Bonus RSUs regularly A portion of total annual bonus is paid in Bonus RSUs, rest in cash Annual RSU grant is made in March and vest ratably over 4 years Mostly in the U.S., with a few in Canada Other RSU grants made for new hire, retention, and promotion Quarterly Dividends $0.12 per share in 2013; doubled to $0.24 per share effective June

6 About Trimble Navigation Limited Trimble Navigation was founded in 1978 and had its IPO debut in March of Trimble Navigation Ltd, headquartered in Sunnyvale, California, provides integrated positioning, wireless, and software technology solutions. It operates globally, through four reportable business segments: Engineering & Construction, Field Solutions, Mobile Solutions, and Advanced Devices. Annual Revenue Key Statistics $559.7M Total Employees 8,200 Employees Receiving Equity Award Types: Stock Options Restricted Stock/Units Performance Employee Stock Purchase Plan 2,200 Yes Yes Yes Yes -6-

7 Trimble Navigation Grant Practices 8,200 employees worldwide Employees in 32 countries 27% of employees have options or RSUs 70% of the 27% have RSUs Vesting for most RSU awards 100% after 3rd anniversary of grant date 30% of the 27% have Stock Options Majority of options grants awarded to VP and Officers of the company 2x per year annual merit award May & Oct 3,700 or 45% of our eligible employees participate in ESPP -7-

8 EMPLOYEE & ISSUER ANALYSIS -8-

9 Executive Summary Tremendous value delivered to employees through equity compensation but limited data-driven insights in the marketplace Studies that have provided insight in this area are based on survey data Historically, little hard data has been available in the industry that provides insights into employee behavior and more nuanced survey results Mining existing data warehouse brings insights to customers and the industry, and could help issuers validate objectives of equity program -9-

10 Fidelity s Analysis of Employee Share Holding Behavior Study Information & Value Analyzes employee holding/selling behavior post distribution of long share awards RSA, RSU, and PSU Behavior analyzed across multiple dimensions age, tenure, and distribution value among others Distributed shares are net of taxes deposited into Fidelity Employees from companies with a corporate event stock split, spinoff, or merger excluded from the analysis Included in Study Data from 300K employees across 225 companies Shares (net of taxes) distributed in CY 2013; holding information as of YE 2014 Clients who grant over $25B in equity each year significant portion in RSA, RSU, and PSU awards Population covers 93% of employees, 75% of shares, and 76% of value across Fidelity clients Fidelity Clients Analysis Population Study Participants Shares Delivered Value Delivered 328, M $7.2 B Trimble K $8.9 M First American K $11.2 M Basic Definitions Holder: Employees who held onto all their shares as of YE 2014 that were distributed in 2013 Partial: Employees who held a portion and sold a portion of their shares as of YE 2014 that were distributed in 2013 Seller: Employees who sold all their shares as of YE 2014 that were distributed in

11 Half of the Employees Are Holding Some or All Their Shares Fidelity Client Averages Averages by Industry 60% 50% 40% 30% 20% 10% 0% 50% 46% 5% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Proportion of Holders, Fidelity Client Averages Note: All shares distributed after tax in Source: Fidelity Recordkeeping Data -11-

12 Overall Behavior 29% 39% 50% 7% 6% 5% 65% 55% 46% Fidelity Clients Trimble Navigation First American Source: Fidelity Recordkeeping Data Charts provide distribution of the analysis population by behavior Across the Fidelity client base: 46% held all of their shares roughly 18 months after distribution (holder) 5% were still holding a portion of the shares (partial) 50% had sold all their shares (seller) Both Trimble and First American Financial have a higher proportion of holders compared to the average Fidelity client Company cultures on share ownership can drive a higher percentage of holders -12-

13 80% 70% 60% 50% 40% 30% 20% 10% 0% Almost 60% of Sellers Liquidate Their Holdings within 90 Days of Payout 60% 70% 47% Sellers: Average Days Held Fidelity Client Book Trimble Navigation First American 12% 21% 11% 15% 6% 21% 21% < 90 Days 90 to 180 Days 180 to 365 Days 365+ Days Analysis population focused on sellers Across the Fidelity Client base: 50% of the employees are sellers Almost 60% of sellers liquidate their holdings within 3 months of payout Within the first year, almost 90% of sellers have liquidated their shares 12% 3% Employee Distribution: Holding Behavior Employees selling < 90 days from distribution may have been planning to sell at earliest opportunity to limit influence of stock price Employees holding shares longer may be more opportunistic/price motivated, or event driven Note: For those with holding restrictions, the number of days held is computer based on the days held after the holding restriction period expired Source: Fidelity Recordkeeping Data 50% 5% 46% Fidelity Clients 39% 6% 55% Trimble Navigation 29% 7% 65% First American Financial Corporation -13-

14 Behavior by Distributed Value Fidelity Clients Trimble Navigation First American 46% 2% 52% 54% 58% 59% 56% 7% 10% 11% 18% 40% 32% 29% 27% 44% 40% 3% 4% 53% 55% 23% 4% 73% 30% 35% 17% 29% 52% 35% 46% 2% 52% 54% 58% 59% 56% 7% 10% 11% 18% 40% 32% 29% 27% < $5K $5K - $25K $25K - $50K $50K - $100K $100K+ < $5K $5K - $25K $25K - $50K $50K - $100K $100K+ < $5K $5K - $25K $25K - $50K $50K - $100K $100K+ Distributed value is the aggregated value of shares deposited into a Fidelity account in 2013 Value is determined based on the fair market value of the security on the day the shares were distributed Across Fidelity clients, employees are less likely to be holders as the value of payout increases The proportion of partial holders increases steadily with an increase in distributed value The proportion of sellers also increases steadily with distributed value; however, the trend is reversed as payout exceeds $100K Presence of Section 16 officers and associated holding requirements are potentially a reason for the reversal Source: Fidelity Recordkeeping Data Note: Value based on the fair market value of the security on the day of distribution -14-

15 Behavior by Age Fidelity Clients Trimble Navigation First American 52% 53% 3% 5% 45% 42% 46% 6% 48% 39% 6% 55% 49% 6% 45% 41% 36% 6% 6% 53% 58% 12% 88% 27% 26% 5% 8% 68% 66% 35% 8% 57% 22% 3% 75% < to to 60 Over 60 < to to 60 Over 60 < to to 60 Over 60 Distribution by age shows that employees younger than 50 are more likely to be sellers, potentially dictated by life stage needs Employees over the age of 50 are more likely to be holders Additional analysis on the relationship between age and distributed value has also indicated that for a given age segment, the proportion of holders reduces with an increase in value, and similarly for a given range of distributed value, the proportion of holders increases with age This demonstrates that value and age both play an important role in influencing employee behavior Source: Fidelity Recordkeeping Data -15-

16 Behavior by Tenure Fidelity Clients Trimble Navigation First American 51% 52% 49% 45% 4% 5% 6% 6% 46% 5% 37% 8% 30% 32% 6% 5% 30% 27% 25% 7% 8% 8% 32% 4% 46% 43% 45% 49% 49% 56% 64% 64% 63% 65% 67% 64% < to to 20 Over 25 < to to 20 Over 25 < to to 20 Over 25 Analysis of Fidelity clients reveals that tenure does not seem to play a significant role in influencing employee behavior Proportion of holders in < 10 year segment is higher driven largely by younger employees (< 30 years), who tend to be holders The proportion of holders and sellers are fairly static for those having a tenure between 10 and 20 years As the tenure increases beyond 20 years, the proportion of holders increases; however, this is more likely influenced by age as those over the age of 50 are more likely to hold Comparisons between tenure, age, and distributed value indicate that tenure does not seem to play as significant a role as age and distributed value Source: Fidelity Recordkeeping Data -16-

17 Behavior by Sec 16 Officers and Location Employee Distribution by Section 16 Status: Fidelity Clients Employee Distribution by Location: Fidelity Clients 20% 50% 15% 47% 58% 4% 46% 65% 5% 48% 4% 38% Non-Section 16 Section 16 US Employees OUS Employees Section 16 employees accounted for 0.5% of the base but 12% of payout value Section 16 officers are predominantly holders with 80% holding some or all of their shares Presence of holding requirements among other factors could be influencing behavior U.S. employees account for 80% of the population and are split evenly between holders and sellers Employees outside the U.S. (OUS) are more likely to be sellers OUS employee behavior potentially influenced by cultural factors and regulatory requirements among others Source: Fidelity Recordkeeping Data -17-

18 Employees in Developed Economies More Likely to Be Holders 100% Employee Distribution by Country: Fidelity Clients 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: Fidelity Recordkeeping Data -18-

19 Correlation of Selling Behavior to Stock Price -19-

20 Correlation of Selling Behavior to Stock Price -20-

21 ISSUER CONSIDERATIONS -21-

22 Considerations How can we use this type of data to align equity granting objectives? Do these findings create the need for modifying plan design such as holding restrictions? Should life stage factors be considered while designing equity grants to employees? What is the optimum grant mix stock settled restricted awards vs. cash settled restricted awards, restricted stock plans vs. cash plans? Can holding behavior insights be used to design different grant strategies in different countries? Do any of these findings change your communication strategy to employees who receive equity grants? -22-

23 Contact Us Alice Chang Director, Executive Compensation First American Financial Corporation Carolyn T. Belamide Sr. Manager, Stock Administration Trimble Navigation Limited Mike Alicea Vice President, National Group Manager Fidelity Stock Plan Services

24 Important Additional Information FOR PLAN SPONSOR USE ONLY. NOT FOR PLAN PARTICIPANT DISTRIBUTION. The tax information contained herein is general in nature and for informational purposes only. Fidelity does not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. Stock plan recordkeeping and administrative services are provided by Fidelity Stock Plan Services, LLC. First American Financial Corporation, Trimble Navigation Limited, CEP, NASPP, and Fidelity Stock Plan Services are not affiliated. The Fidelity Investments and pyramid design logo is a registered service mark of FMR LLC. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI