Stock ownership guidelines are one of the most powerful tools to align executive and shareholder interests. As a corporate HR or legal professional, you understand the importance of keeping executives and Directors informed about their stock ownership guideline compliance status. But how can you make sure your compliance statements really pack a punch? With years of experience poring over countless guidelines from a variety of companies and industries, I’ve developed a deep understanding of what works and what doesn’t. So if you’re ready to make your compliance statements truly compelling, read on for my top 5 tips!
Tip #1: Specify the level of stock ownership that is expected for each executive or Director role, which is generally expressed as a multiple of base salary or annual retainer. This is the most basic and essential information your participants need to know. By stating the ownership requirement clearly and consistently, you set the expectation and the goal for each participant.
Tip #2: Provide a snapshot of how each executive and Director is doing in terms of meeting the ownership requirement, as well as a historical trend of their progress. This is where you can make your statements more personalized and dynamic. By showing each participant’s current ownership level and how it has changed over time, you can give them a sense of achievement and recognition. You can also highlight any gaps or challenges that they may face in reaching or maintaining the required ownership level.
Tip #3: Explain how stock ownership is measured and monitored, including what types of equity awards count toward ownership and how often compliance is assessed. This is where you can make your statements more clear and comprehensive. By explaining the methodology and frequency of measuring and monitoring stock ownership, you can avoid any confusion or misunderstanding among your participants. You can also demonstrate that the company has a robust and consistent process for enforcing the guidelines.
Tip #4: Describe any consequences for failing to meet or maintain the required ownership level, such as mandatory retention of vested shares. This is where you can make your statements more persuasive and impactful. By describing the potential consequences for non-compliance with the guidelines, you can create a sense of urgency and accountability among your participants. You can also reinforce the importance and value of adhering to the guidelines.
Tip #5: Indicate how many vested shares can be sold without falling below the required ownership level. This topic is top-of-mind for most participants. Providing clarity on this matter can go a long way in alleviating a pressing concern and ensuring compliance with the guidelines. You can use a simple formula or a calculator tool to help your participants estimate how many shares they can sell without violating the guidelines. You can also remind them of the benefits of holding onto their shares, such as potential appreciation, dividends, and voting rights. By providing clear and helpful information, you can reduce confusion and frustration, and increase trust and satisfaction among your participants.
BONUS: Highlight any best practices or programmatic enhancements that go beyond the minimum expectations, such as using an average stock price to account for volatility or requiring executives and directors to hold shares for a certain period after vesting or retirement. This will help your participants recognize the leadership and innovation your company demonstrates in this area.
By following these tips for a well-crafted stock ownership guideline compliance statement, you can educate and engage your participants, demonstrate your company’s commitment to sound corporate governance practices, and address the expectations of shareholders and proxy advisors.
At Equity Abacus, we have developed a software solution that can help you create, manage, and report on your stock ownership guidelines and retention policies with ease and accuracy. Our software can automate the calculation of ownership levels based on real-time data, generate customized reports for different audiences, and alert you to any potential issues or non-compliance situations.
If you want to see how our software can help you improve your stock ownership guideline compliance statements and streamline your administration process, let’s arrange a demo.