Reviewing the recently released Fredrick W. Cook Co. report "The 2008 top 250 - Long-Term Incentive Grant Practices for Executives" re-reminded me about how fast trends are moving in the executive compensation arena.

Less than a decade ago, executives were being showered with plain-vanilla stock options on a regular basis, and many executives had never even heard of terms such as restricted stock, "full-value" awards, or performance shares.  Today, those plain-vanilla options are on the decline, while restricted stock and performance shares are a regular part of the long-term incentive lexicon, especially in public companies.

The report, which focused on very large public corporations, shows a dramatic shift in long-term incentive practices in recent years, first away from stock options, then to restricted stock (or RS units - RSUs), and today more towards performance shares (essentially performance-restricted stock, instead of time-restricted stock). While some readers may wonder if trends in large public corporations are relevant to their organizations, at least in the executive compensation arena, most of the trends and innovations tend to start in larger corporations (who have the internal staff and external consultants to research and develop new or revised approaches to long-term incentives).

While stock options remain the most common form of long-term incentive (LTI) granted to executives, the percentage of execs receiving them has dropped from 90% to 79% between 2005 and 2008.  Over the same period, restricted stock, which gained ground earlier in the decade, has actually dropped slightly in usage (from 66% to 60%), largely at the expense of increased use of performance shares. 

Performance shares, which are earned (are granted and/or vested) based on the achievement of predetermined goals over a specified period of time, have gained significant traction over the past few years. In 2005, 40% of large-company executives received them, while in 2008 that percentage had increased to 60%. 

The report also states that this increasing trend toward performance shares will continue, with an increasing percentage of firms considering or planning their use in the future. According to the report, they are the only major type of LTIs that are increasing in prevalence of usage right now.

The movement towards performance shares is likely to please at least some of the executive pay critics who have claimed (often correctly) that many executive compensation plans and practices were not "pay for performance" oriented enough.