CEO Compensation: Less Skin in the Game Than Ever

Every year at about this time, partially due to the fact that company annual reports start rolling in, the topic of CEO compensation receives an increased level of scrutiny.  And whether or not you agree with their level of pay, most would agree that CEOs should have some skin in the game, so when stockholders do well they do well and vice versa.  

Within the next couple of weeks, Forbes will release its annual CEO Compensation Survey, which will most likely show a continuation of a trend that has been in place for several years now.  This trend is that CEOs have less skin in the game than ever.  The chart below shows the average stake that CEOs hold in the companies they run.  According to Forbes, the average CEO of America's 500 largest companies owned 2.5% of the companies they ran back in 1990.  Over the last 20 years, however, the level of ownership has been in steady decline.  In fact, there have only been three years since 1990 that CEO ownership in the companies they run actually increased, and today average CEO ownership is at 1.2%, which is a record low for the life of the survey.  The fact that CEOs are owning less and less of a stake in the companies they cover is certainly not a trend that makes one want to plow into stocks.  That being said, we would note that the years when the average CEO saw his/her stake increase (1999, 2000, and 2005) were not necessarily very good long-term buying opportunities.

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