October 25, 2010
Study: Director Stock Ownership Guidelines
– David Chun, Equilar
Recently, we completed a study on director stock ownership guidelines. Here are the key findings:
– Ownership Policy Prevalence: The prevalence of Fortune 250 companies with publicly disclosed director stock ownership policies increased from 82.1 percent in 2008 to 84.0 percent in 2009. Ownership policy prevalence includes companies that have ownership guidelines, holding requirements, or both.
– Ownership Guideline Prevalence: Ownership guidelines grew in prevalence at Fortune 250 companies, with 79.4 percent of companies disclosing director ownership guidelines in 2009 compared with 77.5 percent in 2008.
– Holding Requirement Prevalence: The prevalence of holding requirements at Fortune 250 companies increased from 2008 to 2009, rising from 19.2 percent to 19.7 percent. An increasing number of companies used holding requirements in conjunction with ownership guidelines.
– Ownership Guideline Design: The prevalence of companies that defined ownership guidelines as a multiple of the annual retainer decreased from 57.0 percent in 2008 to 55.0 percent in 2009. In addition, the prevalence of companies that disclosed ownership guidelines as a fixed number of shares increased from 27.4 percent in 2008 to 23.8 percent in 2009.
– Holding Requirement Design: In 2009, 34.0 percent of director holding requirements at Fortune 250 companies were designed to be in effect only prior to the satisfaction of ownership guideline targets. Once ownership goals are met, these holding requirements are no longer active.
– Target Ownership for Directors: At Fortune 250 companies, the median value of the target stock ownership level for directors was $261,750 in 2009. Ownership guidelines targeted using a fixed number of shares increased from $212,150 in 2008 to $261,750 in 2009.
– Hardship Provisions: Among companies having ownership policies, the prevalence of companies disclosing hardship provisions for their directors decreased 4.3 percent in 2009.
– Other Practices: As companies continue to adjust to new disclosure regulations, more detail has emerged on key practices related to stock ownership policies. This report explores new disclosure related to compliance status, non-compliance penalties, and restrictions on hedging.