Resurgence of Evergreen Features in IPO Equity Plans Restrict Investor Say
MARCH 15, 2021
- The ability to assess and vote on equity plans is an important shareholder right in the U.S. and equity awards generally account for the bulk of executive pay.
- With the repeal of Section 162(m) of the internal revenue code, mandatory approval votes on equity plans reverted from once every five years to the exchange listing’s rules, which is generally once every ten years.
- Companies that IPO with an evergreen provision may not receive any shareholder vote on their equity plan for up to ten years, restricting investor say on an important source of dilution.
- Evergreen provisions in equity plans are generally disfavored by shareholders and may result in a longer duration between shareholder votes to approve an equity plan.
- The two-year trend from 2019 to 2020 of equity plans authorized at newly listed IPOs reveals the practice of including evergreen provisions does not appear to be declining which points to the need for increased monitoring by investors.