A Comparison of Restricted Stock Grants Between Dual‐Class and Single‐Class Companies

• Published date: 01 July 2018
• Date: 01 July 2018
• DOI: http://doi.org/10.1002/jcaf.22347
• Author: Dan Zhou,Di Wu,Ji Li

AComparison of Restricted

Stock Grants Between Dual-Class

and Single-Class Companies

Ji Li, Di Wu, and Dan Zhou

INTRODUCTION

When a private

company goes public

in the U.S. stock mar-

kets, it can choose

either a single-class

structure ora dual-

class structure.

Owners make sucha

decision based on their

expectations of owner-

ship and decision-

making power. Exam-

ples of dual-class com-

panies include

Facebook,Alibaba,

LinkedIn, andGoo-

gle. In fact, many

high-tech andsocial

media companiesare

in favor of a dual-class

stock structurefor the

purposes of being flex-

ible in decisionmak-

ing and in attracting

and retainingtalent.

Accordingto data

analysis provided by

Dealogic, there are

98 IPO firms that

are listed on U.S.

exchanges which have

chosen a dual-class

structure. That num-

ber was 59 between

2010 and 2012.

This article pro-

vides additional evi-

dence and analysis

for the understanding

of dual-class structure

and single-class struc-

ture and, ultimately,

for the debate over

which structure better

protects shareholders’

interest, improves

firm performance,

and benefits long-

term firm growth. In

detail, this work

focuses on character-

istics of performance-

based and time-based

stock awards in com-

pensation plans for

both dual-class firms

and single-class firms.

To the best of these

authors’knowledge,

In recent years, quite a few new economy-type

companies have chosen a dual-class stock structure.

However, industry, investors, and academia have

never reached consensus regarding such a structure.

Under this context, this article investigates how dual-

class and single-class firms apply performance-based

and time-based restricted stock in compensating their

executives to shed light on the debate. Results suggest

dual-class and single-class firms pay similar amounts

of stocks to their CEOs. Cash bonus payment accounts

for larger percentage within total compensation and

stock compensation accounts for a smaller

percentage in dual-class firms relative to single-class

firms. Dual-class companies are less likely to use

performance-based and time-based stock awards.

Additionally, dual-class firms vest their performance-

based stock grants over shorter periods compared

with single-class firms, but both types of firms vest

their time-based stock grants over similar periods.

CEOs in dual-class firms do not always receive stock

compensation awards as quickly as those in single-

class firms. For performance-based stock grants, a

ratable vesting method is less common, but the cliff

vestingmethodismorecommonindual-classfirms.

Such vesting arrangements of stock awards in the

compensation plan motivate CEOs in dual-class firms

to target and meet long-term growth goals and protect

shareholders’interests. © 2018 Wiley Periodicals, Inc.

Refereed (Double-Blind

Peer Reviewed)

© 2018 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22347 91