More Fortune 500 companies are increasing their use of full awards, time- and performance-based restricted shares, and stock-settled units, over other appreciation awards such as stock options and stock-settled appreciation rights when structuring their equity incentive practices, says a recent study by consulting firm Towers Watson.

In the publication released on Jan. 16, the study finds that in 2010, the use of full awards increased to 47 percent of the number of shares granted and 75 percent of the grant-date fair value of all equity awards at the typical Fortune 500 company compared to only 29 percent of the shares granted and 57 percent of the value five years ago.

“While most companies (75 percent) continue to use a mix of vehicles in their program, the percentage of companies granting only full-value awards has increased from 16 percent to 19 percent in 2010,” it said in the report. At the same time, the percentage of companies granting only appreciation awards decreased from five percent to three percent in 2010. Companies not granting equity awards remained constant at three percent, the study says.

Based on the number of shares awarded, companies granting a variety of equity vehicles in 2010 reported a median mix of weighted 53 percent appreciation awards and 47 percent full-value awards. The consulting firm says these figures represent a seven-percentage-point shift from 2009 to 2010 in favor of full-value awards and an 18-percentage point shift between 2006 and 2010. On a dollar basis, the median grant-date fair value is weighted 75 percent full-value awards and 25 percent appreciation awards.

“The evolution in the mix of equity vehicles granted has played an important role in reducing run-rate levels over the years as companies are able to grant fewer shares overall by replacing appreciation awards with full-value awards, which are more valuable on a share-for-share basis,” the study says.

Run rate is the total number of shares awarded during a company's fiscal year as a percentage of average common shares outstanding.

The preliminary review of the 2011 data by the consulting firm shows continuing reductions in run rate as two-thirds of the 152 companies reviewed reduced their run-rate levels in 2011 compared to 2010. Approximately, one-third of the sample studied by Towers Watson showed reductions greater than 25 percent from 2010 to 2011.

Based on the analysis, they say the median run rate will most likely fall below one percent in 2011. The study is limited to Fortune 500 companies—with the fiscal year ending between Nov. 30, 2010 and Jan. 31, 2011—that have at least three years of historical grant data and typically award shares in the time period under review.

“If recent years tell us anything about share usage in compensation plans, it's that fluctuations in share price can and do have an impact on the number of shares awarded,” it says.

The study also notes that most companies appear to place more emphasis on providing incentives that support executive attraction, motivation, retention, and the conservation of cash than on manipulating the run rate.

Other evidence showing companies' shift in assigning full-value awards over appreciation awards include the decline in the total outstanding equity awards and number of shares reserved for future issuance at year-end or the overhang rate. The median overhang rate is 9.7 percent for fiscal year 2010 compared to 10 percent in previous years.