Large companies are stepping up their corporate stock ownership requirements for their CEOs and other executives to strengthen the link between shareholder and management interests, Towers Watson found in an analysis released Tuesday.
In all, 90% of the 478 large companies analyzed require CEOs, as well as other executives, to have company stock ownership requirements. That percentage is up from 75% in 2007 when Securities and Exchange Commission disclosure of such ownership took effect.
In 2014, 81% of the companies that have ownership guidelines required CEOs to own five or six times their salary, up from 67% in 2007. Forty-one percent of the companies required CEOs to own five times their salary and 40%, six times. Those requirements are changed from 60% and 7%, respectively, in 2007.
Some 47% of the companies with ownership requirements have retention policies in place, requiring executives to hold company stock, primarily earned through compensation program, for certain periods. That's up from 24% in 2007.
In 2014, 6% of companies had a retention period of less than a year, while 8% of companies had a retention period that goes beyond the tenure of the CEO. Most companies, 55%, require one-year retention.
“Companies are looking to set themselves apart (from peers) by setting (ownership and retention) requirements higher” to bolster their edge with shareholders, said Robert Newbury, director of the executive compensation resources group at Towers Watson.
“Shareholders want to see a strong link” between executive and shareholder interests, Mr. Newbury said.
Retention requirements, especially extending past a CEO's tenure, serve shareholders to mitigate risk from financial restatements by putting executives at a similar risk to their stockholdings, Mr. Newbury said.
The analysis was based on data for the public companies in the Fortune 500 for 2014 and the Standard & Poor's 500 index companies for 2007.