Directorship Magazine: The Most Important Dimension of Alignment – Why Share Ownership Matters as Much as Pay

September 16, 2020

If you look up Sheldon Adelson’s pay in the Las Vegas Sands Corp. proxy statement, you would see that he makes about $25 million per year as chair and CEO. About half of that sum is nominally at risk in his incentive plan. Today’s S&P 500 CEOs typically have about 80 percent to 90 percent of their annual pay at risk. So, Adelson’s pay appears to be only modestly aligned with his performance. And yet he sees his personal net worth from company shares fluctuating on average by more than $1 billion per week.

Among non-founder CEOs, none has accumulated more of their company’s stock than Jamie Dimon, chair and CEO of JP Morgan Chase & Co. Dimon holds about 8 million shares, currently valued at roughly $800 million. If you look up his incentive plan awards, his nominally variable compensation can range from zero to about $40 million in a year. However, the value of the shares he owns typically swings by an average of $40 million each week.

For executives with these kinds of holdings, their nominal variable compensation plans do not likely occupy a lot of mental space. Their alignment comes almost entirely from their existing wealth in stock, not from their incremental annual income. However, even for CEOs with much less ownership than these leaders, a significant portion of their alignment derives from their stake in their firms.

By Marc Hodak

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About Marc Hodak

Marc Hodak Farient headshot SEC rule

Partner, Farient Advisors, Dallas

New York/Dallas
Mobile: (917) 532-2716

Marc works closely with senior management, boards of directors, and investors, in both public and private companies to develop executive compensation programs that are shareholder-friendly, attractive to management, and responsive to the needs and concerns of boards.

He is a recognized thought leader in incentive plan design. His articles have been published in numerous magazines, including ForbesNACD DirectorshipDirectors & Boards, and academic journals. He has been quoted in the national press, including the Wall Street Journal, Bloomberg, and Reuters.

He is a sought-after speaker at forums and conferences throughout the U.S. and Europe on executive compensation, corporate governance, and value management. Marc was named to the 2020 NACD Directorship 100, a list of the most influential people in corporate governance and the boardroom.

For the last 10 years, Marc has taught corporate governance as a professor at NYU’s Stern School and as visiting lecturer at the University of St. Gallen in Switzerland. Before joining Farient, Marc was the principal at Hodak Value Advisors and led value-based management implementation and related projects at Stern Stewart & Co. He earned his MBA in finance from the University of Pennsylvania Wharton School and a BS in aerospace engineering from the University of Maryland.

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