High-Multiple CEO Stock Requirements Rise

December 04, 2017

The median CEO stock-ownership requirement for the S&P 500 has risen from five times annual salary in 2013 to six times annual salary today, according to ISS. David Teigman comments on CEO stock-ownership policies.


An excerpt from “High-Multiple CEO Stock Requirements Rise,” Agenda/Financial Times, December 4, 2017:

Meanwhile, some companies also specifically disclose which equity vehicles are not counted toward the minimum. The number of companies that say they do not count options has declined from 33 in 2014 to 25 in 2017, while the number saying they do not count unvested options has risen from three to 12.

These changes could be due to investor pressure. David Teigman, partner in the executive compensation, benefits and Erisa practice at Cadwalader, Wickersham & Taft, says shareholder activists are subjecting these policies to increasing scrutiny.

“One result of this is that investors are increasingly moving towards detailed examination of the actual ownership levels of company insiders and their trading history, instead of just looking at the parameters of the stock ownership guidelines promulgated by the company,” he writes in an e-mail.

He says that some companies implement high-multiple plans because the CEO’s salary accounts for little of their total comp, with the bulk being constituted by equity awards.

“Any trend towards increasing the multiples or other requirements could be intended to make these programs more effective, with boards looking to incentivize increased company performance and create stronger alignment between the company, its executives and shareholders,” he writes. Conversely, Teigman writes, at some companies, “even a multiple of base salary may not represent a significant economic stake.”





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