In this article, Guerdon Associates analyses the shareholdings of CEOs in the ASX 200. We examine whether any differences have occurred over the last decade between the size of CEOs’ shareholdings in producing discernible difference in company performance over time.

Methodology

We extracted remuneration and shareholding information as disclosed in annual reports for ASX 200 CEOs in the GuerdonData® database. We removed part year CEOs and took the 1,5 and 10 Year TSR for each company. These values were taken from public disclosures up to the 28^th of May 2023.

We valued shareholdings in the following three ways:

• The dollar value of the holding (multiplying the number of shares held by the CEO at the FYE by the share price as at the company FYE).
• The CEO shareholding dollar value as a percentage of market capitalisation.
• The CEO shareholding dollar value as a percentage of their Total Fixed Remuneration (TFR).

We identified 180 CEOs in the ASX 200 (90%) who held shares in the company they manage.

We analysed by industry, market capitalisation and returns over a 1-year, 5-year and 10-year period.

Summary Information

Table 1 shows ASX 200 CEO shareholdings.

Table 1: Summary Statistics on ASX 200 CEO shareholdings

 

Figure 1 : Shareholding ($M) by Market Capitalisation($M)

Figure 1 shows the average shareholding $M amount at each percentile bracket. On average, companies with higher market capitalisation have a CEO with a larger shareholding by dollar value.

By Industry

Table 2 shows the shareholding dollar amount for the ASX 200 CEOs grouped by GICS Sector

Table 2: Shareholding ($M) by GICS Sector

The interquartile range (between the 25^th and 75^th percentile) is largest for the consumer discretionary sector at $50.7M, followed by Health Care at $32M. This indicates a large spread in shareholdings for CEOs within these sectors.

Communication services and utilities have the narrowest interquartile ranges.

Initial Analysis

For our analysis, we ran regressions on the data (excluding outliers) and examined their correlations.

There is no correlation between the CEO’s shareholding $ value and TSR. Correlations calculated are found to lower than 0.1 over 1-year, 5-year and 10-year periods.

We found a statistically significant positive relationship between 10-Year TSR and shareholding as a percentage of market capitalisation (p value = 0.001121).  P values indicates the probability that the relationship found in the regression is coincidental, in this instance there is approximately a 1 in 1000 chance of this relationship being purely coincidental.

There is also a statistically significant positive relationship between 10-Year TSR and shareholding as a percentage of TFR (p value = 0.000148 or 1.48 in 10,000 chance that this is coincidental).

A stronger relationship between long term total return performance (10-year TSR) and shareholding can be observed when compared the short term (1-year TSR). This is consistent with prior Guerdon Associates research (see HERE)

We were unable to find any meaningful relationships for 1-Year TSR. This may be attributable to the short time frame and the volatile nature of the market. 1-Year TSR is more influenced by short term market sentiment compared to 10 year trends. Arguably, 1-Year is also too short a period for CEO tenure to meaningfully influence company performance and value sustainability.

Additional Analysis

We analysed the relationship between share ownership and long-term performance by industry. Some of the significant findings:

• Relationships within the Health care industry was found to be significant for all 3 regressions in 10-Year TSR.
• Energy and Real Estate was significant for shareholding as a % of market capitalisation.

This remains consistent with our prior research – these are industries with long investment cycles.

Conclusion

There is not a relationship between absolute $ levels of shareholdings and TSR

There is a long term relationship between TSR and:

• CEO shareholding as a percentage of Market Capitalisation; and
• CEO shareholding as a percentage of Total fixed remuneration

The former may arise if a CEO has been in the company from its formative stages, and/or over time accumulated large holdings from incentive vesting and private purchases. The latter suggests that CEOs who have holdings as a significant portion of personal wealth (assuming salary as a primary income source) are more focussed on maintaining and growing their nest egg.

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