S&P 100 executive stock ownership guidelines: 2015 – 2021

Company stock ownership required for S&P 100 CEOs is climbing to a value of six times salary or higher. While the most common multiple for S&P 100 CEOs has remained six times salary since 2015, CEO multiples greater than that have gained traction and appear on pace to become the majority practice in the near future. Stock retention requirements have also seen significant growth since 2015. A significant majority of companies (70% in 2021) now utilize retention requirements in conjunction with their stock ownership guidelines, signaling an increased commitment to both total ownership value and long-term consistent holdings with less strict adherence to the time needed to comply with policies. One driver of these policies occurred in September 2019 when the Council of Institutional Investors (CII) suggested that ownership guidelines and retention policies should be included as part of an executive compensation program focused on building long-term (at least five years) shareholder value. Prior to this suggestion, in 2015, Institutional Shareholder Services (ISS) began to account formally for these policies when evaluating and scoring a company’s equity compensation plan.

Willis Towers Watson’s Global Executive Compensation Analysis Team reviewed stock ownership guidelines and retention policies in effect during 2015, 2019 and 2021 within the S&P 100. Key findings from this study include:

• Stock ownership guideline structures: Stock ownership guidelines typically require executives to own company shares in an amount equal to a multiple of their base salary. This salary multiple approach was used for 85% of S&P 100 guidelines in 2015, 86% in 2019 and 90% in 2021. The remaining S&P 100 guideline structures in 2021 were designed as an absolute dollar value (4%), a fixed number of shares (2%), the lesser of a salary multiple or fixed share amount (2%), or the lesser of a dollar value or fixed share amount (2%).
• CEO salary multiples: Roughly half of S&P 100 CEO multiples were six times salary during each year of the study, comprising 49% in 2015, 50% in 2019 and 48% in 2021. Companies using a CEO multiple greater than six times salary represented 27% in 2015, 33% in 2019 and 42% in 2021. The prevalence of CEO multiples greater than six times salary increased 27.3% from 2019 to 2021 and 55.6% from 2015 to 2021. In 2021, CEO multiples greater than six times salary included seven times salary (10%), eight times salary (12%), 10 times salary (14%), 12 times salary (3%), and 15 times salary or higher (3%).
• Tier 2 salary multiples (highest multiple for non-CEO executives): The multiple used for the “Tier 2” level of ownership guidelines was three times salary for 49% of S&P 100 Tier 2 multiples in 2015, 45% in 2019 and 47% in 2021. The second most common Tier 2 multiple was four times salary, which made up 24% of Tier 2 multiples in 2015, 32% in 2019 and 29% in 2021. This study excluded executive chairs from Tier 2 salary multiples.
• Recent ISS changes: ISS updated its approach for evaluating stock ownership guidelines in late April 2021. Under its current policy, companies that count unearned performance awards or unexercised stock options toward the guideline will no longer receive credit for having ownership guidelines. The new methodology applies for recognizing any portion of these awards, including the “in-the-money” value of unexercised stock options. In 2021, 14% of S&P 100 ownership guidelines included unearned performance awards and/or unexercised stock options.
• Stock retention requirements: Prevalence of stock retention requirements among the S&P 100 rose from 60% in 2015 to 71% in 2021, an increase of 18.3%. These requirements can be designed as (i) a “guideline-dependent” policy prohibiting executives from selling shares until their ownership guideline is achieved or (ii) a “stand-alone” policy in which executives cannot sell shares earned from long-term incentive (LTI) awards for a certain number of months or years after vesting regardless of their ownership guideline status. In 2021, 70% of S&P 100 retention requirements consisted of only a guideline-dependent policy, up from 60% in 2015. Companies using both guideline-dependent plus stand-alone policies represented 17% of S&P 100 retention requirements in 2021, increasing from 13% in 2015. The remainder of S&P 100 retention requirements in 2021 (13%) were only a stand-alone policy, declining from 27% in 2015.

As companies seek ways to better align leadership with stakeholders, stock ownership guidelines and retention policies will serve to amplify the long-term focus of executive teams. LTI awards continue to make up the lion’s share of CEO pay programs (61% for S&P 1500 CEOs in 2020); consequently, CEO ownership targets are likely to keep ballooning above six times salary. Stock retention requirements are also expected to broaden as more companies gravitate toward guideline-dependent and stand-alone retention policies. Going forward, companies who have not addressed these issues recently may need to gauge how their policy designs match up against current trends and expectations from shareholders.

Authors

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Dan Leon

Senior Associate, Global Executive Compensation and Analysis Team (Houston)

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LaToya Scott

Lead Associate, Global Executive Compensation and Analysis Team (Houston)

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