Well-timed grants offer more shares for the same award value to executives, as evidenced by an ISS ESG analysis. As exhibited in the infographic below, by timing the grant on March 20 instead of matching the prior year grant date of March 3, executives doubled their share awards.
While gains from well-timed grants may be tradeable, they may not be sustainable in the long-term. As shown below and according to ISS data, out-of-cycle awards granted near the low point have a strong positive correlation with one-month returns, but the opposite relationship when predicting three-year returns. Granting near the low point has a less pronounced correlation with one month returns but is in line with the Efficient Market Hypothesis.
Based on ISS ESG’s analysis of the Russell 3,000, a small but substantial number of companies grant out-of-cycle awards, as illustrated below. A large minority of these companies time their grants near their stock-price low. Recent market volatility and the end of 162M may increase the prevalence of this practice going forward.
By Brett Miller, Head of Data Solutions, ISS ESG