NEW YORK, July 28 /PRNewswire/ -- Chief Executives at major high-tech firms have experienced net losses of over 36 percent, or an average of $38.2 million in their total equity holdings in the past 12 months, as the highly volatile stock market yo-yoed the value of industry shares. Even more consequential than this decline in CEO personal wealth is the resultant loss to these companies of the management retention and incentive value of their equity programs. Such value erosion has left these companies without a "carrot or hook" to hold onto or motivate their top executives.
These findings are based on a recently completed study by Steven Hall & Partners, an independent executive compensation consulting firm with offices located in San Diego and New York.
For the full 12-month period from June 30, 2008 to 2009, the average retention value of equity awards among 100 CEOs of the largest technology companies dropped over 42 percent from $8.0 million to $4.6 million. These values include all unexercisable options and any unvested shares held by executives in the companies' equity incentive plans.
Dividing the 12 months into two 6-month periods clearly highlights the impact of stock market volatility. Values fell a staggering 60 percent from $8.0 million on June 30, 2008 to $3.2 million on December 31, 2008, driven by average stock price declines of almost 42 percent. The next six month period from January 1 to June 30, 2009 marked a period of strong recovery, as the average values rose 46 percent to $4.6 million, fueled by a 41 percent rise in average stock price. Despite this recovery, the yo-yo effect netted an overall decline of 42 percent in unvested equity grants.
"Unfortunately losses by these CEOs are symptomatic of the declines being experienced down through these organizations by all equity plan participants. Regular evaluation of equity plan incentive and holding power is required with back-up action plans," commented Lawrence Robinson, Managing Director of Steven Hall & Partners. "Otherwise stock market volatility may result in unanticipated and adverse shifts in incentive plan effectiveness."
Over the 12-month study period, the 100 technology CEOs as a group lost a total of $3.8 billion in net equity value, driven by the net 23 percent average stock price decline. The value of individual CEO total equity holdings, which includes shares owned outright plus exercisable and unexercisable stock options and unvested restricted and performance shares, fell on average from $105.2 million to $67.0 million over the 12 months.
"Equity compensation has long been viewed as the most direct approach to linking the interests of executives with those of their shareholders," observed Lawrence Robinson. "The study confirms this total alignment, and underscores the dramatic decline in CEO personal wealth alongside that of their stockholders, employees and Board members."
About the Study
The study included CEOs at 100 of the largest publicly traded high-tech firms with average revenues of $7.03 billion. The following companies were excluded due to the magnitude of CEO equity holdings: Dell, Google, Microsoft and Oracle. Values are based on closing stock prices on each of 6/30/08, 12/31/08, and 6/30/09. All holdings were obtained from the proxy statement most applicable to valuation date; values may not reflect changes in holdings subsequent to most recent proxy disclosure.
SOURCE Steven Hall & Partners