A new study shows that over the past seven years, founder CEO equity holdings in companies going public have dropped, according to Presidio Pay Advisors. There is very little difference between ownership levels of founder and non-founder CEOs at the time of IPO.
The findings suggest that compensation programs should be re-evaluated before being made public. Media founder CEO ownership fell to under three percent of total shares outstanding in 2008. This is down significantly, compared to a high of 10 percent 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.”
Companies are taking an additional two to three years to file for IPO as a result to maintain a more sustainable financial profile.
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.
- As they prepare to go public, 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.”