Tracking CEO Wealth—Who’s Up, Who’s Down
December 20, 2022
As the stock market goes so goes CEO wealth.
A large part of a CEOs’ personal wealth is typically tied to the stock prices of the companies they lead. Thus, the value of CEO-owned stock across the S&P 500—down nearly 20% year to date—has mostly taken a beating.
An analysis by Farient Advisors of the S&P 500 examined how stock valuations from January 1, 2022, through the market close on December 15, 2022, impacted the value of CEOs holdings.
With one notable exception, there was a median decline in S&P 500 CEO wealth across all sectors. That bright spot was the S&P 500 Energy sector where CEOs saw the median value of their shares increase by 45% driven by higher energy prices since the onset of the war in Ukraine.
Conversely, CEOs in the Communications Services sector saw the largest median drop (-39.3%) in their personal wealth due to declining stock prices followed by Real Estate (-28.6%), Information Technology (-24.1%) and Consumer Discretionary (-19.5%).
Corporate leaders who saw the greatest dollar decline in the value of their stock holdings were those with large stakes in their companies such as Tesla CEO Elon Musk and Facebook CEO Mark Zuckerberg. Musk’s holdings lost a staggering $103 billion in value while Zuckerberg saw the value of his holdings plummet by $76 billion over this period.
The stocks of Tesla and Meta stock price have been cut in half while the share value of Occidental and Marathon Oil has almost doubled over the last 11 months.
As all investors know, the stock market gives and takes.
Paying CEOs and other executives in equity aligns their interests with those of shareholders. But one notable consequence of the significant loss in stock value in addition to the psychological jolt is the potential for shareholder dilution. Companies in the S&P 500 Communications Services sector—which include Google owner Alphabet, Comcast, Fox, Verizon, plus 21 others—realized a median stock price decline of 39.3%. To make up for that loss in value, compensation committees may feel the need to grant more shares to top executives to deliver the same value as in previous years’ grants. This would lead to misalignment of pay and performance over time if there is a significant rebound in the stock price on the higher number of shares. A larger grant will also result in a dilution of ownership, which investors largely view in a negative light, and can create shortages in shares allocated to the equity incentive plan.
Boards should consider what the decline in stock price means in terms of:
- Upcoming equity awards: Will awarded shares increase or will award values decline?
- Holding power of existing awards: Is the organization at risk of executive attrition given less “skin in the game”?
- Stock dilution: Will granting additional shares to make up for decline in price accelerate depletion of the approved equity incentive share pool?
- Form of LTI awards: Should the company transition to a mix of equity and cash to limit share dilution?
- Future stock performance: Will a rebound in stock price have the appearance of an unearned windfall to executives that were granted equity in the price trough?
To explore how CEO wealth is changing in real time visit Farient’s Wealth Tracker. The tool tracks compensation data for the CEOs of S&P small-, mid-, and large-cap companies and the Russell 3000. Filter by index, timeframe, sector, or company to learn what CEOs made or lost in the last year, month, or week, and the degree to which these changes were due to movements in the stock price.
About Farient Advisors
Farient Advisors LLC is an independent premier executive compensation, performance, and corporate governance consultancy. Farient provides a full array of services, linking business strategy to compensation through a tailored, analytically rigorous, and collaborative approach. Farient has locations in Los Angeles, New York, Louisville, and Dallas and works with clients globally through its partnership in the Global Governance and Executive Compensation Group (GECN). Farient is a certified diverse company and is recognized by the Women’s Business Enterprise National Council.