September 16, 2020

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

By Marc Hodak

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.

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