New Study Reveals Sharp Decline in Founder CEO Stock Ownership at IPO
Presidio Pay Advisors' IPO Pay Reporter™ finds surprising convergence of ownership levels for founder and non-founder CEOs of companies going public
San Francisco, CA (PRWEB) June 3, 2009 -- A new analysis of IPO compensation and financial data from Presidio Pay Advisors shows that over the past seven years, founder CEO equity holdings in companies going public have plunged. As a result, there is very little difference between ownership levels of founder and non-founder CEOs at the time of IPO. This and other changes in compensation practices reinforce the need to review compensation programs well in advance of going public.
Data from the San Francisco-based compensation consulting firm's newly released IPO Pay Reporter™, an executive compensation database that allows users to create customized data sets and reports, reveals that median founder CEO ownership at IPO fell to under three percent of total shares outstanding in 2008. This is down sharply from a high of over 10 percent in 2002. Conversely, non-founder CEO ownership has remained relatively consistent at slightly greater than one percent of total common shares outstanding at IPO.
The firm's analysis finds investors are returning to a more rational financial expectation of companies looking to raise public capital. This has forced a change in the financial profile and compensation strategies of IPO companies. In 2008, median company revenue, market capitalization and net income at IPO were at the highest levels since Presidio Pay Advisors began collecting IPO data in 2002.
"Today, very few companies go public with limited revenue and nonexistent net income," says Brandon Cherry, a principal at Presidio Pay Advisors. "The prevailing IPO profile has shifted to a company with healthy revenue and positive net income, which is significantly affecting how compensation is delivered."
In an effort to meet a more sustainable financial profile, companies are taking an additional two to three years to file for IPO. According to Cherry, the most pronounced result is the dilution of founder CEO ownership; this is likely due to less favorable term sheets or additional rounds of financing required to reach IPO.
Presidio Pay Advisors' analysis also found that the mix between options and common stock ownership among all executives has undergone a transformation. In 2002, executive officers had a stronger link to investor success, with over 85 percent of their ownership in the form of common stock and less than 15 percent in stock options. By 2008, nearly 40 percent of executive officer ownership was stock options, which have no downside risk for executives, creating a potential disconnect between the financial interests of executives and company investors.
Other major findings include:
| | - Companies in 2008 awarded and reserved fewer shares for grants to employees; median stock option overhang was at its lowest level in seven years.
- Since 2005, a 24 percent rise in median CEO base salary has been offset by a 25 percent decrease in annual cash bonuses, leaving total cash compensation essentially unchanged for both founder and non-founder CEOs.
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As they prepare to go public, a lengthy process, companies should anticipate harsh scrutiny of their executive compensation plans. "Good compensation programs can't be developed overnight," Cherry cautions. "We encourage companies to get started now so they are prepared as the market recovers."
About Presidio Pay Advisors, Inc.
Presidio Pay Advisors is a San Francisco-based compensation consulting firm that provides companies and their Boards of Directors with independent compensation consulting services for executives, broad-based employees, sales forces and specialty business units.
IPO Pay Reporter™ is an online tool that delivers customized executive compensation data based on user-defined peer groups. Companies or parties interested in learning more can visit IPO Pay Reporter or contact Presidio Pay Advisors at (415) 438-3400.
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