The New, New (Index) Math: 500 Now Equals 502


When Google made a decision in April of this year to split its stock into Class A (GOOGL) and Class C (GOOG) shares, both equities were subsequently included in the S&P 500 and NASDAQ 100 indexes. This change broke new ground for companies with relative total shareholder return (RTSR) plans that use either index as a comparator group— they suddenly have duplicate peers to consider. We discussed the potential consequences of Google’s split in an earlier expert insight.

At the time, we thought Google might be an isolated case, but low and behold, another S&P 500 company has followed suit. On August 6, 2014, Discovery Communications, Inc. split its stock into Class A (DISC.A) and Class C (DISC.K) shares. S&P once again made a decision, announced here, to include both equities in the S&P 500 index. As a result, the S&P 500 list has jumped from 500 to 501 to 502 components in roughly five months. It may sound like funny math, but 500 actually equals 502 in this case!

As with Google's stock split, clients face a troubling theoretical dilemma— if you continue to benchmark against the S&P 500, you are now competing against the same company twice. What are your options?

Going forward, companies with active RTSR plans face two options:

  • Keep it simple, do nothing and compete against both Discovery equities; or
  • Carve out one of the Discovery equities entirely from your plan, and disclose this decision in award agreements (we recommend carving out DISC.K, which is the new class C share, maintaining class A shares in the plan)

Per our previous alert, both approaches present companies with previously unforeseen communications and technical challenges. For clients with RTSR plans that use custom peer groups including Discovery, the new class of Discovery shares is likely to be less of an issue. Plan documents often reference specific ticker symbols, DISC.A or DISC.K for example, meaning companies can opt to compete against only one of the equities.

Overall, this is still a rare situation; however, these events could foreshadow a larger trend among S&P 500 companies. Additionally, this could lead to more companies explicitly including provisions for this type of event in their RTSR plans or a broader move toward bespoke custom peer groups.

To learn more about participating in a Radford survey, please contact our team. To speak with a member of our compensation consulting group, please write to consulting@radford.com.

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