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CEO Stock Ownership Value Plunged in 2008, Study Finds
 

By Stephen Miller  11/17/2009

Chief executive officers at the largest U.S. companies saw the value of their company stock ownership plunge as the U.S. equities market declined, according to an annual study by consultancy Watson Wyatt.

“When the economy prospers and the stock market does well, executives reap the rewards. But when markets decline, executives also suffer financial setbacks,” said Ira Kay, global director of executive compensation consulting at Watson Wyatt. “The financial crisis and market downturn in 2008 bear this out.”

The study, 2009/2010 Report on Executive Pay: Moving Beyond the Financial Crisis, found that the total value of CEO stock ownership and outstanding equity awards and bonus payouts for CEOs decreased by 42 percent in 2008, which is larger than the 34 percent decline experienced by a typical shareholder at those companies. The stock market recovery in 2009, however, has mitigated some of the overall loss incurred in 2008. In aggregate, the CEOs analyzed in the study lost a combined $53.7 billion—roughly $55 million for the average CEO—in 2008, compared with $3.2 trillion for shareholders of the same set of companies.

The study is based on public data from 982 U.S. companies in the S&P Super 1500 that filed proxies before July 2009. 

CEOs and Shareholders Experienced Reductions in Value with Stock Price Declines

Industry

Number of companies

Change in company
market value

Change in value of CEO ownership + outstanding equity + annual bonus

Total dollar value ($M)

Median percentage change

Total dollar value ($M)

Median percentage change

Consumer

215

-$453,178

-39%

-$24,548

-45%

Energy/ utilities

117

-$726,579

-38%

-$7,903

-50%

Financials

171

-$505,444

-27%

-$7,596

-36%

Health care

107

-$237,607

-26%

-$2,101

-36%

Materials/ industrials

197

-$707,081

-33%

-$4,607

-40%

Technology

160

-$619,757

-36%

-$6,953

-50%

All industries

967

-$3,249,647

-34%

-$53,747

-42%

Source: Watson Wyatt.

The study also noted that compensation committees continue to structure CEO pay programs so companies with better performance deliver higher realizable pay to their CEOs than low-performing companies. The median CEO at high-performing companies has a three-year aggregate realizable long-term incentive value that is 150 percent larger than at low-performing companies—$2.3 million versus $0.9 million in 2008.

“As we move into 2010, the role of shareholder activists, forthcoming final SEC regulations and proposed federal legislation will keep the spotlight on executive pay-for-performance,” said Steve Van Putten, senior executive compensation consultant at Watson Wyatt. “As companies move beyond the financial crisis and start preparing in earnest for economic recovery, they will be challenged to develop incentive programs that continue to attract and retain top talent and motivate and reward superior performance, yet at the same time respond to external pressures,” he added.

Other findings from the survey include:

The value of broad-based employee stock option grants declined by 17 percent in 2008. Realized gains from employee stock option exercises declined by an average 55 percent last year, from $54 million per company to $24 million.

The estimated in-the-money value of employee stock options outstanding declined by approximately $100 billion for the companies in the study.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Companies Enhancing Stock Plan Offerings to Employees at All Levels, SHRM Online Compensation Discipline, November 2009

Executive Pay: Perception and Reality, HR Magazine, April 2009

Companies Reducing Equity Compensation Value in 2009,  SHRM Online Compensation Discipline, March 2009

Bringing Underwater Stock Options Back to the Surface,  SHRM Online Compensation Discipline, February 2009

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