A PVH period on executive equity awards is a powerful corporate governance tool that can help companies improve ties between business leader compensation and shareholder interests. Indeed, PVH periods generate a long list of compelling benefits for companies and employees alike (learn more about those benefits in our linked article).
In the United States (U.S.), PVH period use by S&P 500 companies has grown over the past few years and reached 11.49 percent in 2021, up from 8 percent in 2019.1 This comes as no surprise given the recent lack of significant regulatory action against companies in the U.S. and a growing number of incentives from proxy advisory firms, tax agencies, etc. to add PVH requirements to executive award plans.
Outside of the U.S., every country has its own set of accounting standards and rules, which raises the question, can organizations use PVHs for awards to non-U.S. employees?
The EU published legislation called the Capital Requirements Directive2 (CRD V), which requires certain financial institutions operating in EU member states to defer a portion of variable compensation for material risk takers. This legislation is enforced in the UK as well because it was enacted prior to the UK’s formal separation from the EU in 2020.
The latest CRD V update raised the minimum deferral period required from three years to four, which must be active law in EU member states and the UK 2021 and onward.3 A significant portion of the variable compensation must be deferred during this period. The legislation can apply to firms outside the European Economic Area (EEA) that carry out business from an EEA or UK-based establishment.
The regulatory agendas of the U.S., UK and EU varies when it comes to PVH use, which should incentivize companies not only to consider using them in the U.S. and abroad, but also to weigh the risks and benefits that come with using them. In this article, we look at the implications and benefits that come with PVHs for organizations distributing equity awards to non-U.S. employees. We also examine what organizations should think about as they consider the link between their business leader and employee compensation and shareholder interests through a global lens.