From the WorldatWork Discussion Board 12/18/2013
Does anyone have a policy or guideline for awarding some type of immediate cash value in lieu of a stock award for employees who have given notice of impending retirement? We no longer have any type of provision in our plan for accelerated or continued vesting for someone who has retired. We have started to see more employees retiring, usually with 3 months advance notice. Awarding stock to these employees during our review cycle does not make sense since they will not realize the benefit of the vesting and we wanted to explore awarding some type of cash equivalent instead. We wanted to see if anyone else has done this and what guidelines might have been used for establishing the appropriate values.
Our Answer:
This is a great question. I would ask you a follow-up. “What is the purpose of your stock/equity compensation program?”
If the purpose is to provide for long-term retention, then Cash in lieu does not make much sense.
If the purpose is to provide for long-term motivation or alignment with companies goals, then Cash in lieu does not make much sense.
If the purpose is to provide attraction for new employees, then Cash in lieu does not make much sense.
If the purpose is to make up for, or augment a compensation philosophy that delivers direct cash compensation as below market levels (or taregted Total Comp levels), then providing some sort of “Cash in lieu of the stock” may be a very good idea. The thought on this last purpose is to make sure that:
- You retiree is justly paid
- Other potential retirees know that they will be paid justly when they leave
- Ensures that those you wish would retire don’t stick around waiting for the stock to vest.