Employees in alternative energy sector received about one-quarter in equity value of contemporary Internet company employees
The alternative energy industry is considered one of the fastest growing segments in business, yet its equity compensation practices are behind those of technology and life sciences industries, according to a new analysis by Radford, an Aon Consulting company.
Although investors believe that parallels can be drawn between the alternative energy industry to the early-stage internet companies in the 1990s, equity granting practices of alternative energy companies measurably lag those firms in historical analysis. While internet companies widely utilized stock options to motivate employees, equity is potentially underutilized in alternative energy companies, despite their similarities in growth potential and the human capital of knowledge workers required to realize that growth.
According to the findings of Radford, employees in the alternative energy sector received about $3,870 each in equity value, which is about one-quarter that of contemporary Internet company employees, who received $14,860 in equity value. Employees at life sciences companies, meanwhile, received about $13,500 and those at technology companies received about $5,900.
Radford’s analysis also showed the differences in equity value delivered to employees were not in concert with the productivity levels they delivered to the company. When looking at productivity, as measured by revenue per employee, alternative energy industry employees delivered roughly the same revenue per employee ($255,250) as employees at life sciences companies ($256,100) and technology companies ($295,200). Meanwhile, Internet company employees account for about $526,800 each in revenue.
Matt Ward, senior vice president and study leader at Radford, said: Stock options were a significant motivating factor for the employees during the Internet run-up, and the use of equity was an effective way of driving the growth that occurred in that industry at the time. The alternative energy companies represent not just the next possible Internet-like growth industry, but perhaps the solution to a larger problem – fossil fuel dependence – as well. Given all that’s at stake, we would expect to see greater use of equity at these companies.”