August 4, 2010
With pay for performance still on everyone’s minds, Equilar has released two recent reports on stock ownership guidelines for executives and directors in the Fortune 250. Based on the CD&A disclosures of 237 companies in FY 2009, this report shows that a large majority of CEOs and directors are placed under some kind of stock-ownership policy– 84.4 percent of CEOs and 84.0 percent of directors, respectively.
Here are a few other interesting findings from the two reports:
- Ownership guidelines and holding requirements, alone or combined, have increased for both groups from 2008 to 2009. While CEOs are increasingly asked to maintain a combination of both, however, very few directors are asked to meet holding requirements– only 19.8 percent see them, whether alone or combined with ownership guidelines. 40.1 percent of CEOs, on the other hand, have some kind of holding requirement.
- Multiples of base salary is still the overwhelming favorite in terms of ownership target design for CEOs, with 82.2 percent of companies using it. The field for directors, however, is much more mixed: while most companies use multiples of the retainer (54.8 percent) or setting a fixed number of shares (23.9 percent), both of these plans have been decreasing in popularity. Setting a fixed value of shares, or coming up with a totally unique plan, are both increasingly common for directors.
- The median target ownership for CEOs is $6 million in stock, compared to $262,850. Both of these values have either stayed static or slightly risen from 2008. At most companies, stock options aren’t counted toward ownership targets for either CEOs or directors.
- Companies are disclosing more details about ownership guidelines than ever: compliance status, anti-hedging policies, non-compliance penalties, hardship provisions, and retirement clauses were all discussed in CD&As in 2009. The full reports provide key disclosure examples for all of these areas.
For more info on stock ownership guidelines, click the relevant link to request the full report:
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April 21, 2010
This proxy season has been the first big test of the SEC’s new policies on disclosing risk-management practices when it comes to pay, and anyone who has a hand in their company’s proxies is likely anxious to know if they’re conforming to the correct standards. Our researchers decided to take a look at the new proxies for a Risk Disclosure and Pay Practices article. Our sample group was 100 large public companies ($14.5+ billion in revenue) who filed proxies on or before April 12, 2010. Here are some of our findings:
- The greatest percentage (72%) of companies cited the tying of long-term performance to compensation as a risk-management policy, with many citing executive stock ownership as a key element in reducing risk.
- The second-greatest percentage (59%) of companies said that ownership guidelines contributed to their mitigation of risk. (NOTE: This figure refers to the number of companies disclosing ownership guidelines specifically as a risk-management strategy, not the number of companies utilizing them overall.)
- 56% of firms cited the balance of short-term and long-term incentives as part of their risk strategy.
- 50% of firms cited the use of clawbacks as part of their risk strategy.
- No firms concluded that their pay practices encouraged excessive risk, but 16% made adjustments to better align executive pay with shareholder interests.
- Only 1% of firms cited elimination of perquisites as a risk-management policy.
We’ll be keeping an eye on any major changes in risk disclosure practices throughout the year. If you’d like to see the full report, click here.
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January 20, 2010
As we adjust to the new SEC disclosure regulations and reflect back on the storms that lead up to the current economic climate, we are left to wonder – what is in the forecast for 2010? While market uncertainties make it tough to predict what will happen next in the world of executive compensation, one thing is for sure: All companies are exploring new ideas and practices to help them comply with stricter regulations, avoid excessive risk taking, and keep their shareholders happy.
Our newly published report, 2010 Executive Compensation Outlook, provides a follow-up to the companies studied in our 2009 Executive Compensation Outlook Report and explores trends and practices likely to affect us this year.
Some of the things we encountered:
- Salary reinstatements are on the rise. Of the 40 executive salary reductions we studied at the end of 2008, nearly a quarter have been reinstated.
- Incentive compensation is changing. Performance awards are being amended to provide longer performance periods, some firms have put relative measures in place, and others have adjusted threshold, target, and maximum level.
- Companies are getting creative with equity compensation. Performance-based awards are being amended to become time-based, option terms are being extended to give stocks a chance to rise, and some companies are adding more restricted shares and stock units to their equity mix.
The complete report is provided to all Equilar Knowledge Center subscribers. Non-subscribers can request a copy of the report by visiting Equilar’s Executive Compensation Reports section or the individual report page here.
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November 4, 2009
Last week we released our annual Executive Stock Ownership Guidelines report, and today, we followed-up with the director guidelines. Not many suprises here, but like the executive guidelines, both required some updating in this challenging economic environment
Released today with the Executive Compensation Trends newsletter, the report covered 240 filing companies and found that 186 of those companies disclosed ownership policies.
A few notable findings:
- The prevalence of ownership policies was 82.1 percent.
- There was an increase in holding requirements, to nearly 20 percent of companies.
- 57.5 percent of companies defined ownership guidelines as a multiple of the annual retainer.
- There was a significant increase in disclosures of hardship provisions.
- The median target ownership for directors was $250,000.
The complete report is provided to all Equilar customer subscribers through Equilar’s Knowledge Center. Non-subscribers can request a copy of the report here.
If you want to be notified of new reports, subscribe to our Executive Compensation Trends newsletter.
Tags: Executive Compensation
, Ownership Guidelines
October 27, 2009
In the just-released Equilar Executive Ownership Guidelines Report, we shed some light on how Fortune 250 companies are dealing with the impact of the market swings on their previous ownership guidelines. In last week’s Executive Compensation Trends newsletter, I highlighted that there was a 75% jump in companies disclosing hardship provisions.
The vast majority (83.5%) of executive ownership guidelines use a multiple of base salary. IE, they require the executives to accumulate shares with a value of some multiple of their base salary. CEOs were required to have the highest multiple on average at 5x while the VP level on average was required to hold 1.5x. Interestingly enough, we found that the lowest CEO ownership multiple was 2x and the highest was 25x base salary.
A few companies disclosed a suspension of their ownership requirements until stock prices reach a higher level or when there is more certainty in the market.
Due to the decline in the company’s stock price in early 2009, Aflac decided to suspend its ownership requirements beginning in February 2009. Here’s Aflac’s March 19 filing:
Aflac Inc. (AFL)
“All of the Company’s NEOs have stock ownership that exceeds their ownership guidelines except for Mr. Tonoike, who has not been in his current position for at least four years. The Corporate Governance Committee approved a moratorium for compliance with the stock ownership guidelines at its meeting held in February 2009, based on the significant decline in the Company’s common stock price in early 2009.”
Many more details and findings are available in our 35+ page report. Equilar customer subscribers have complimentary access to all of our reports. Non-subscribers can request a copy of the report here.
To subscribe to Executive Compensation Trends, click here.
Tags: compensation disclosure
, corporate executives
, Executive Compensation
, executive compensation trends
, Ownership Guidelines