Ownership Guidelines, Holding Requirement Trends
With executive pay under an increasingly harsh spotlight, more large companies are attempting to link pay with performance by requiring executives to build stakes in their firms through stock ownership guidelines and holding requirements, according to an analysis of Fortune 250 companies by compensation research firm Equilar Inc.
Of 237 public Fortune 250 companies, 200 (84 percent) disclosed stock ownership policies last year, consistent with the 82 percent that did so in 2008, according to Equilar, which looked at companies’ 2009 proxy filings and in some cases, data from company Websites.
Among the 200 companies with ownership policies, about 53 percent disclosed ownership guidelines only, while about 5 percent (9 companies) disclosed holding requirements only. The remainder disclosed both ownership guidelines and holding requirements for their executives—a 17 percent increase from 2008.
The report also shows that companies are increasingly requiring executives to sustain significant equity ownership throughout their terms. Among 95 companies disclosing holding requirements, 65 percent require executives to retain shares before guidelines are met, and 47 percent use general holding requirements.
Stock ownership guidelines that define ownership targets as a multiple of base salary are still the far most commonly used design model, employed by 82 percent of companies. The second most common design models use a fixed number of shares (13 percent), and about 3 percent use a combination of both.
The median base salary multiple for CEOs is five times the base salary, while target ownership levels for CEOs ranged from two times base salary to 15 times base salary.
Stock options are least likely to be counted toward meeting executive ownership guidelines. Among companies with ownership guidelines, about 11 percent allow options to be applied toward ownership targets, compared with 33 percent that explicitly exclude them. On the other hand, share equivalents and plan shares are both counted toward the guidelines at over 40 percent of companies disclosing a definition of stock.
In 2009, more Fortune 250 companies began to disclose information regarding guideline compliance, hardship provisions, anti-hedging policies, and retirement clauses in their executive stock ownership policies.
Among the 200 companies with ownership policies, 73 percent disclosed the compliance status of their executives in 2009. Roughly 16 percent disclosed non-compliance penalties for not obtaining the required level of ownership by the end of the target time frame, such as reduction or elimination of annual equity compensation, increased stock retention requirements, and mandatory investment of a percentage of bonuses into company stock. Twenty-seven companies disclosed hardship provisions for executives in 2009, compared to 28 in 2008 and 16 in 2007.
The “2010 Executive Stock Ownership Guidelines” report is available for download here.








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