Trends in Share Ownership Guidelines and Retention Requirements
February 20, 2020
A majority of public companies have some form of stock ownership guidelines in place for their CEO and, in many cases, senior executives. What is data telling us about trends in these guidelines over the past decade?
According to research by Willis Towers Watson (“New research confirms CEO stock incentives increasingly tied to stock ownership and retention” – Dan Leon and LaToya Scott, January 29, 2020), and NASPP/Deloitte Consulting LLP survey data, CEO ownership requirements are increasing and stock retention requirements are more common than ever before.
Willis Towers Watson’s research involved analysis of trends and practices at S&P 500 companies over the past decade.
Key findings include:
- Data confirms a steady upward trend in companies who are adding in retention requirements to their ownership guidelines. Willis Towers Watson reports consistent growth in this area over the past decade moving from just 35% of companies having retention requirements in 2010, to 64% in 2019 (an increase of 83%).
- In a related trend, the number of companies with ownership guidelines only is steadily decreasing (33% in 2019, down from 50% in 2010), which appears to correlate with an increase in the number of companies with both stock ownership guidelines and retention requirements (63% in 2019, up from 33% in 2010).
- The overwhelming majority of S&P 500 companies use an ownership target that is a multiple of base salary (91% in 2019). This is consistent with data from the NASPP/Deloitte Consulting LLP 2017 Domestic Stock Plan Administration Survey (“2017 Survey”) in which 86% of respondents cited use of a multiple or percent of compensation to meet the guideline.
- For CEO guidelines, a multiple of 5x salary was long the most common. In recent years, a multiple of 6x salary has been introduced with increasing momentum. In 2019, 6x salary has solidified the lead and stands as a new norm in the S&P 500 at 64%. Only 24% of studied companies were still using a 5x salary multiple in 2019.
- Although the majority of companies included a compliance period of five years in 2019 (73%), there were a number of companies (18%) who opted to forgo a compliance period and instead utilize a retention policy that restricts executives from selling shares until they have achieved their ownership target. This data is also consistent with the findings of the 2017 Survey, in which 57% of companies cited 5 years as the timeframe to meet guidelines, while 27% had no specific time frame but restricted sales until the guidelines are met.