A Canadian Coalition for Good Governance review is recommending that boards of directors should encourage greater common share ownership amongst officers of companies. ‘Management-Shareholder Alignment: Effective Equity Ownership Policies’ makes a number of recommendations providing boards with a range of alternatives which would support this objective and strengthen management alignment with shareholder interests. To start, it suggests that share ownership requirements be established that continually build an officer’s economic interest over time. One such approach would be to shift from an ownership requirement with a defined threshold to an annual share purchase requirement. For example, CEOs and NEOs (named executive officers) would be required to annually invest a minimum of 20 per cent and 15 per cent respectively of their total direct compensation in common shares. Another avenue would be to require NEOs to either use a portion of the cash proceeds received upon vesting of any cash-settled share-based awards to purchase common shares of the company or retain a portion of shares they receive upon settlement of any share-based awards.
- PWC