Companies are urging executives and outside directors to "stock up".NEW YORK--(BUSINESS WIRE)--Oct. 19, 1995--A new survey conducted by consultants Towers Perrin Towers Perrin is a global professional services firm. It was established 1 March 1934 as Towers, Perrin, Forster & Crosby. The umbrella name of Towers Perrin was adopted in 1987. indicates a dramatic increase in the number of companies actively promoting stock ownership among their executives and outside directors. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. a recent CompScan, 92% of companies now use one or more approaches to increase stock ownership among their executives, up from 75% of companies surveyed just over two years ago. Although companies are using a variety of methods to boost ownership, stock ownership guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. are receiving the most attention. According to the survey, 28% of responding companies had, or were establishing, specific ownership targets for their top executives, almost double the number from the last Towers Perrin survey on stock ownership. An additional 8% of respondents are planning to adopt guidelines within the next 6 to 12 months. And companies with guidelines seem to be quite happy with them (most rate them as a 4 or 5 on a 5 point scale with "5" as the highest rating). "We believe stock ownership initiatives will soon be a permanent fixture An article in the nature of Personal Property which has been so annexed to the realty that it is regarded as a part of the real property. That which is fixed or attached to something permanently as an appendage and is not removable. in most, if not all, companies' executive compensation programs. They represent an effective way to align executive interests with those of shareholders," said Michael L. Davis, a Towers Perrin principal and head of the firm's executive compensation practice. "Regardless of the specific approach a company may choose, the increase in executive stock ownership programs highlights just how important this issue has become to corporate America over the past few years." DESIGN OF OWNERSHIP GUIDELINES According to Towers Perrin, guidelines are generally denominated as a multiple of pay, rather than in shares or share value. This linkage linkage In mechanical engineering, a system of solid, usually metallic, links (bars) connected to two or more other links by pin joints (hinges), sliding joints, or ball-and-socket joints to form a closed chain or a series of closed chains. to compensation helps ensure that the required level of investment generally is commensurate com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. with the individual's financial resources. Most survey respondents also use base salary as the basis for their guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. target. Specifically, 83% of those with guidelines define those guidelines as a multiple of base salary, while 6% define their guideline as a multiple of total cash compensation. Only 11% specify ownership of either a set number of shares or a dollar value of shares. Median ownership multiples range from a high of 4 times base salary for top executives to roughly 1 times base for executives at lower salary ranges. In general, executives have five years to achieve their required ownership target. Base Salary Level Median Ownership Multiple $ 500,000 and above 4 $ 400,000 3 $ 300,000 3 $ 200,000 2 $ 100,000 and under 1 MIX OF METHODS The survey found that since no single method is likely to generate the ownership levels many companies seek, most rely on a combination of approaches. The most common methods, in order of prevalence, are shown below: Ownership Approach % Reporting Use Stock investments in broad-based plans (401(k),ESOPs) 71 Company culture/CEO encouragement 63 Opportunity to have bonus or other compensation settled in stock or stock options 32 Ownership guidelines 28 Opportunity to defer de·fer 1 v. de·ferred, de·fer·ring, de·fers v.tr. 1. To put off; postpone. 2. To postpone the induction of (one eligible for the military draft). v.intr. compensation in account tied to value of company stock 24 Other (e.g., reload options Reload Option An employee stock option that grants additional options upon exercise of the original. Notes: The employee satisfies the exercise price of their current option with shares rather than cash. ; required ownership level as condition of receiving other compensation) 27 None 8 IMPOSING CONSEQUENCES Most responding companies impose some sort of consequence (short of firing the individual) if an executive fails to achieve his or her target within the required time frame. Twenty-seven percent either take away the right to participate in another incentive plan or reduce the executive's current level of participation. Fifteen percent provide some kind of reminder to the executive, while 11% require the individual to invest other payouts (e.g. bonuses) in company stock. About a third cited use of a grab bag grab bag n. 1. A container filled with articles, such as party gifts, to be drawn unseen. 2. Slang A miscellaneous collection: The meeting evolved into a grab bag of petty complaints. of "penalties," ranging from a reduction in future stock option or restricted stock grants and eliminating the right to exercise existing options to a meeting with the CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. or chairman to discuss the reasons for noncompliance noncompliance failure of the owner to follow instructions, particularly in administering medication as prescribed; a cause of a less than expected response to treatment. noncompliance . DIRECTORS AND STOCK OWNERSHIP According to the survey, 90% of respondents are trying to increase stock ownership among their outside directors. But while ownership itself is clearly a key issue, ownership guidelines for outside directors have not yet become as common as they are for executives. Only 8% of survey companies reported use of guidelines for directors and most had adopted them recently. Currently, more common approaches for increasing directors' holdings currently include creating a cultural expectation for stock ownership, (reported by 39% of respondents), offering opportunities to defer other payouts in an account tied to stock value (21%), and paying out retainers or other form of directors compensation in stock (also 21%). The Towers Perrin survey had 260 participants nationwide, 87% of which were nonfinancial companies. Two-thirds have sales of $1 billion or more, with 23% in the over $6 billion category. Manufacturers, utilities and consumer products companies were among the industry groups represented. Towers Perrin is one of the world's largest management consulting firms List of Management Consulting Firms 1. McKinsey & Company 2. Marakon Associates 3. Boston Consulting Group (BCG) 4. A.T. Kearney 5. Booz Allen Hamilton (BAH) 6. Monitor Group 7. Bain & Company 8. Roland Berger . It helps organizations manage their investment in people, advising them on human resource management, employee benefits, risk management, compensation and communication as well as overall strategy and organizational effectiveness Organizational effectiveness is the concept of how effective an organization is in achieving the outcomes the organization intends to produce. The idea of organizational effectiveness is especially important for non-profit organizations as most people who donate money to non-profit . Headquartered in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , the firm has approximately 5,200 employees and offices in 74 cities worldwide. CONTACT: Towers Perrin David Fridling, 914/745-4179 |
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