Executive Remuneration: Should directors have a stake in the company ?

One of the much vexed questions which arises with Executive remuneration particularly with Chief Executives, Board Chairs and Directors is how much of a stake in terms of shares/equity should these people hold in the companies which they govern ?  This is particularly relevant for underperforming companies where directors receive high fees but own little or no shares. This becomes all too transparent when a corporation undertakes risky debt financed acquisitions or material business changes which leave shareholders with less value, but directors are unaffected as they have no shares which can be affected. In contrast, engineering company UGL actually issues shares to directors which make up 30% of their fees. The Chair of the Board of Coca-Cola Amatil owns shares in his company worth 11 times his directors fee yet the Board Chair of Spark Infrastructure paid a fee of $245K in 2012 has no shares in that company.

The Australian Shareholders Association undertook research on the issue of shareholdings and gathered data on the 64 independent non-executive chairs of Boards in Australia's top 100 companies. A snapshot of some of the information is below and shows the numbers of share owned, their market value and the level of director's fee paid to the Chairs. Clearly some chairs have little stake in their companies whilst others have committed sizeable amounts of investment.

 

Company	Shares owned	$ Value	Latest $ fee
Spark Infrastructure	0	0	$ 245,000
Fairfax Media	99,206	$   48,611	$ 432,730
Westpac	16,039	$ 449,092	$ 677,464
Woodside Petroleum	20,000	$ 700,200	$ 751,771
Adelaide Brighton	4,739	$   15,638	$ 269,178
Telstra	140,000	$ 653,800	$ 684,441
Perpetual	2,431	$   84,477	$ 484,275
Tabcorp	34,292	$ 102,535	$ 449,625
ASX Ltd	3,825	$ 127,181	$ 326,694
Aust Found Invest Co	2,444,439	$13,077,525	$ 150,000