Following our article in March examining the Minimum Shareholding Requirements (MSR) of executives in the ASX100 (see HERE) Guerdon Associates researched the likelihood of ASX100 CEOs meeting their MSR from equity incentives alone. This is an important consideration. If executives cannot meet MSR requirements from vested incentives they must purchase shares on market with after tax salary that otherwise was planned to be applied to mortgages, living costs, other investments and savings.

Analysis was conducted on Financial Year 2022 data. We considered the cumulative vesting of:

• Short-term incentive (STI);
• Long-term incentive (LTI); and
• Long-term equity (LTE).

To calculate cumulative vesting, we considered the annual vesting of incentive plans over a period of 10 years. It was assumed there would be no changes to the incentive plans over this period.

For example, consider an LTI with maximum opportunity of 100% of Fixed Remuneration that vests in 4 years. An FY22 grant would vest in FY25, and an FY23 grant would vest in FY26. The cumulative vesting in FY26 would therefore be 200% of Fixed Remuneration at maximum.

Table 1: Example cumulative vesting for LTI

 

Incentive outcomes were considered at both target and maximum, where target assumes that incentive outcomes are at target for all years, and similarly for maximum.

The results are summarised as follows:

• Approximately three quarters of CEOs analysed would reach their MSR within the required timeframe. This is true regardless of whether the incentive outcome was at target or maximum.
• For all ASX100 companies with equity incentives, MSR would be achieved within 6 years or less from equity incentives alone.
• Approximately half of CEOs would achieve MSR within 4 years at target, and within 3 years at maximum.

Structure of MSR policies and guidelines within the ASX 100

Table 2 summarises the presence of MSR policies and guidelines within the ASX100. Two thirds of companies in the ASX 100 have a defined MSR policy for CEOs. Approximately a quarter have not disclosed any policy or guideline.

Table 2: Presence of CEO MSR policies and guidelines in the ASX100

 

Table 3 shows the summary statistics for the MSR as a percentage of Fixed Remuneration and the years given to achieve the MSR.

Table 3: CEO MSR policies and guidelines in the ASX100

 

The median MSR as a percentage of Fixed Remuneration is 150%.

The most common requirement is for the MSR to be obtained within 5 years.

Achievement within MSR timeframe

Analysis was conducted on the 70 companies with an MSR policy stated as a percentage of fixed remuneration. Twenty-six did not disclose an MSR policy or guideline. Macquarie Group disclosed the MSR policy as a percentage of aggregate profit share allocations. Three companies (Altium, Block and WiseTech) have founders leading the company with significant shareholdings. These companies are excluded as there is no non-founder CEO eligible for an equity incentive.

Table 4 summarises whether the MSR could be achieved within the given timeframe from equity incentives alone.

Table 4: CEO MSR achievement at target and maximum

 

Eight companies did not disclose the number of years required to achieve the MSR.

Approximately three quarters of CEOs analysed would reach their MSR within the required timeline from equity incentives alone. This is true regardless of whether the incentive outcome was at target or maximum.

Year of Achievement

Table 5 summarises the year of MSR achievement for the 70 companies with equity incentive structures.

Table 5: year of MSR achievement at target and maximum

 

For all companies, MSR would be achieved within 6 years or less.

Approximately half of CEOs would achieve MSR within 4 years at target, and within 3 years at maximum.

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