Stock still the Holy Grail of executive compensation

Sep 17 2007 by Nic Paton Print This Article

Offering a stake in the business has become the predominant means of attracting, retaining and rewarding high-flying executives, managers and employees in America.

In fact, share ownership is such an accepted part of the executive remuneration landscape that the typical private sector executive team now owns more than eight per cent of the company, according to a survey by consultancy Syzygy.

The research found a widening gulf between private and public sector firms, with public sector firms increasingly unable to compete with the riches on offer in the private sector and so more likely to be losing key technical and executive talent.

"We were astonished by the sharp increase in compensation this year," said Syzygy chief executive David Broman.

"It's common knowledge that high profile public companies like Google and VMware pay big bucks, but we see private companies, hungry for talent, shell out $160,000 for a top developer plus a big chunk of pre-IPO stock," he explained.

"A CEO of a public company must tell a pretty good story to keep their best talent from jumping ship for the potential huge rewards of a start-up," he added.

And one of the biggest factors encouraging people to switch from public to private was the lure of equity in the business, it suggested.

Aggregate employee ownership had leapt by 10 per cent this year, the survey concluded, jumping from 15.13 per cent to 16.64 per cent of a company's total shares outstanding.

Stock options remained the dominant means of providing employees with equity, although use of performance-based stock option grants had also doubled and were now provided by nearly half of the companies surveyed.

Restricted stock, or outright grants of stock to employees, increased slightly in prevalence, from 24 to 26 per cent, said Syzygy.

The biggest increases in stock ownership were in the software industry, where overall employee ownership had so far jumped a fifth this year. Annual cash compensation showed a nearly identical leap.

Comprehensive healthcare benefits packages were also now much more commonplace as retention and recruitment tool, and nine out of 10 companies were contributing to employee tax deferred retirement plans, said Syzygy.

Syzygy chief finance officer Brian Andriuzzo added: "Private companies are changing the compensation practices for their board of directors. The number of private companies providing cash compensation to board members doubled in 2007, and we found a pretty dramatic increase in the use of annual stock grants."