Requiring CEOs to retain their equity awards is something we have been advocating for a long time. It is absolutely essential for making sure executives focus on the long term. We appreciate the credit given to ISS and CII in this article, further evidence that the SEC’s proposed rules squelching shareholder oversight on pay are completely unjustified.
The just-ended decade brought dramatic change to the way large companies compensate their CEOs, a new report shows.
In particular, today, far more companies require chief executives to retain equity earned through long-term incentives for a period of time beyond its vesting date.
In 2010, 35% of S&P 500 companies had such retention requirements, according to the report from Willis Towers Watson. By 2019, that figure had swelled to 64%.
While virtually all large publicly held companies have guidelines for the amount of company stock CEOs should own, mandating that they retain equity post-vesting may be headed in that direction. “This dramatic growth suggests that stock retention requirements could become nearly as universal as ownership guidelines,” the report said.
A majority (52%) of S&P 500 companies in 2019 had stock retention policies prohibiting executives from selling equity until they have met their ownership guideline target….A recent driver of this practice occurred in September 2019, when the Council of Institutional Investors suggested that ownership guidelines and retention policies should be included as part of an executive compensation program focused on building long-term shareholder value.
Previously, in 2015, proxy adviser Institutional Shareholder Services began to formally account for these policies in evaluating and scoring companies’ equity compensation plans.