Stock Ownership Guidelines

2018.06.03  Targeted Stock Ownership Levels for CEOs. At first blush, six (6) times salary seems like a lofty level that 75% of public companies have targeted for CEO ownership of company stock.  Interestingly, if you consider that base salary tends to comprise less than half the income of most CEOs, then today's 6x remains right in line with the long-term conventional wisdom that three (3) times total compensation is a baseline for targeted stock ownership for executives.  See 2018 ClearBridge 100 Report re 6x survey data.

The better focus for compensation strategists would nevertheless seem to involve diversifying the source of executive incentives, in the sense that there seems to be a significant over-reliance on equity awards which in many instances determine CEO "winners and losers" based on market timing and industry sector. Compensation committees should consider balancing equity awards with deferred compensation benefits, because they can be specifically designed to encourage the achievement of long-term goals (such as increased earnings or revenue growth).