The Advisors' Blog

– Lynn Jokela

Earlier this week, I blogged about FW Cook’s 2020 “Top 250 Report.”  Depressed stock prices have led to stock ownership compliance problems for some companies and executives and the report includes strategies to help resolve this issue.  Problems tend to occur under stock ownership guidelines that include a timeline requirement such as compliance with an ownership requirement within X number of years.  For companies encountering this issue, the report provides a couple of strategies for consideration:

1) Remove the timeline requirement altogether and retain (or add) a retention requirement.

For example: require executives to retain 50% of their net-after-tax shares until compliance is achieved. Compliance becomes a moving target, whereby one does not “run out of time”. Companies should consider the impact that a high retention ratio has on executive liquidity

2) Adopt a “once-met-always-met” provision.

Once an executive achieves compliance, the minimum number of shares that must be held to retain compliance becomes set (i.e., changes in share value are inconsequential, so long as the executive does not liquidate more shares than their required minimum)

As an example of a once-met-always-met provision, the report references page 38 of Danaher’s 2020 Proxy Statement that states: ‘Once an executive officer has acquired a number of Company shares that satisfies the ownership multiple then applicable to him or her, such number of shares becomes his or her minimum ownership requirement (even if the officer’s salary increases or the fair market value of such shares subsequently changes) until he or she is promoted to a higher level.’