Designing State-of-the-Art Executive Stock Ownership Guidelines

Abstract

The purpose of a stock compensation program is, typically, to create an incentive for executives to focus on improving stock price as well as to increase stock ownership. Unfortunately, companies have found that compensation is often delivered without an increase in actual share ownership. As a result, guidelines for appropriate levels of executive stock ownership have become popular as a way to force or encourage executives to retain shares from stock compensation programs. Although there are a number of arguments for and against these programs, many of the flaws and criticisms can be addressed through design and administration. This article provides a detailed look at stock ownership program design, including the types of guidelines that can be implemented, how shares can be counted toward meeting goals and approaches to compliance and monitoring. It also discusses other methods of encouraging and forcing ownership.