The Advisors' Blog

– Broc Romanek, CompensationStandards.com

A few days ago, in the “NASPP Blog,” Barbara Baksa summarized the findings in the NASPP’s 2011 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte) that came as a big surprise to her – the design and usage of stock ownership guidelines. Here is Barbara’s blog:

Maybe I haven’t been paying attention, but the significant increase in companies that have ownership guidelines was a big surprise for me. 73% of respondents in the 2011 survey report having ownership guidelines, up from only 54% of respondents in the 2007 Domestic Stock Plan Design and Administration Survey (also co-sponsored by Deloitte), a 35% increase. Back in 2007, we also asked how many respondents were considering implementing ownership guidelines in the next two years. Based on the responses to that question, I would have expected around 65% of respondents in the 2011 survey to have ownership guidelines, quite a bit less than 73%.

In case you are wondering, 25% of respondents to the 2011 survey that don’t currently have ownership guidelines said they are considering implementing them in the next three years. That would add around 35 companies to those that have guidelines, so I’d expect the percentage of respondents with ownership guidelines in 2014 (the next year the survey is planned for) to be close to 80%. All the cool kids are doing it, is your company one of them?

What Counts?

Everyone counts shares owned outright, whether purchased on the open market or through some type of compensatory or private arrangement. Of the respondents that offer the following types of arrangements, here’s the percentage that count them toward their guidelines:

– 70% count unvested restricted stock
– 60% count unvested phantom stock and RSUs
– 93% count vested phantom stock and deferred RSUs
– Only 31% count unvested performance shares

72% of respondents indicated that they offer stock options but don’t count them toward the guidelines.

We asked about a bunch of other types of arrangements in the survey, but the ones I list above are the most interesting.

Who Counts?

Ownership guidelines are largely applied only to top executives–98% of respondents said that the guidelines apply to their CEO and CFO and 95% apply the guidelines to their other NEOs. Only 71% apply the guidelines to other senior executives. From there, application of the guidelines drops off sharply, with only 12% applying the guidelines to other management.

How and When to Count

Most, or 78%, of respondents base required ownership levels on a multiple or percent of compensation. 68% allow up to five years to meet the guidelines; another 13% percent require guidelines to be met in three years.

How Much to Count

For CEOs, required ownership levels are pretty high. 74% of respondents require the CEO to own stock equal in value to five or more times his/her compensation (49% of respondents require exactly five times compensation). That is perhaps reflective of how much CEOs get paid in stock. For the CFO and other NEOs, the requirement is a little lower, with 78% of respondents indicating that their requirement for these positions falls in the range of two to four times their compensation.

Need to Catch Up?

For more on stock ownership guidelines, don’t miss the double session at the NASPP Conference coming up in 10 days: “A Sensible Approach to Stock Ownership Guidelines” and “Stock Ownership Guidelines: Towards the Achievable, Meaningful, and Manageable.” You can also check out the articles and tools in the NASPP’s new “Stock Ownership Guidelines Portal.”