Written by “If 6 was 9,” Jimi Hendrix once pondered, questioning the nature of reality & perception. While we might not have a psychedelic soundtrack to accompany us, today’s story will dive into a similarly math-focused conundrum: Does a CEO with a 6x salary ownership requirement have it twice as hard as a CEO with a 3x one? Let’s meet our protagonists, Phyllis & Bob, to find the answer.
Ownership Requirements Can’t Be Viewed in a Vacuum
Stock ownership requirements, whether based on salary multiples, fixed # of shares, or hybrid approaches, must be viewed holistically. Factors like share counting policies and long-term incentive (LTI) grant levels play significant roles in determining the ease of compliance.
Phyllis and Bob – A Tale of Two CEOs
Phyllis, the CEO of Company A, has a $500,000 salary and a 6x ownership requirement, amounting to a $3m target. Her company allows her to include direct holdings and vested stock options in her ownership calculation. She typically receives an annual option grant valued at $1.5m.
Bob, the CEO of Company B, has a $900,000 salary and a 3x ownership requirement, leading to a $2.7m target. However, only his direct stock holdings count towards his ownership calculation. Bob typically receives an annual option grant valued at $1m.
Breaking Down the Ownership Puzzle
At first blush, Phyllis’ 6x requirement appears to be twice as challenging to satisfy as Bob’s 3x one. However, several mitigating factors indicate otherwise:
- Phyllis’ lower salary
- Her higher LTI grant levels
- Her company’s more generous share counting policy (i.e., options count!)
These factors suggest that Phyllis’ path toward share ownership compliance may be significantly less burdensome than Bob’s.
Conclusion: The Lesson Behind the Numbers & the Power of Equity Abacus
The story of Phyllis and Bob teaches us stock ownership requirements can’t be reduced to a single value. Just as Hendrix questioned the certainty of numbers in his song “If 6 was 9,” we should remember to approach ownership guidelines with a comprehensive perspective. Evaluating the complexities of share counting policies, LTI grant levels, and valuation will help paint a more accurate picture of the challenges each CEO faces in their journey towards compliance.
To navigate the intricate world of ownership requirements, consider leveraging the power of Equity Abacus. This innovative software empowers companies to better understand and manage their guidelines and retention requirements with ease and efficiency.
In the end, it’s not just about the numbers; it’s about understanding the intricate dynamics that lie beneath the surface and embracing sound corporate governance principles. With the help of Equity Abacus, companies can navigate the complexities of ownership guidelines, make data-driven decisions, and build a brighter, more prosperous future for stakeholders.