Winners and Losers in 2011 Stock Market

By Steven Hall & Partners, Special for US Daily Review.

Collectively, the value of outstanding equity awards for the S&P 500 CEOs increased just +1.2% in 2011, erasing midyear swings of +22% in April and -16% in September.  The aggregate market capitalization for these companies decreased -1.1% during the same period, according to a recent study conducted by the executive compensation consultancy Steven Hall & Partners.

While the data shows an increase for the group as a whole, there were actually more ‘losers’ than ‘winners’ in 2011.  Of the 496 CEOs analyzed in the study, 232 (48%) gained an average of $12.8 million, or +46.2%, and 255 (52%) lost an average of -$10.8 million, or -29.8%, on their outstanding equity awards.

The largest gains and losses were concentrated among a handful of CEOs and were due primarily to changes in unexercised option value.  Of the 232 CEOs whose wealth increased during the year, more than half the gains came from just 32 individuals.  Likewise, among the 255 CEOs who lost value, more than half the losses observed came from 22 CEOs.

Over 60% of the gains and losses among the group came from changes in unexercised stock option value.  The leveraged nature of stock options can result in significant gains if long term stock price increases are attained.  Conversely, if the stock price falls below the exercise price, the option loses all of its value.  “Many CEOs choose not to exercise stock options when they vest, but wait instead for the option’s expiration date, thereby keeping more ‘skin in the game’, which is good for shareholders,” said Sandra Pace, Managing Director of Steven Hall & Partners.  “But the combination of significant holdings of unvested options and a volatile stock market can result in dramatic changes in the value of unvested equity holdings.”

“Our analysis reinforces the need for companies to develop balanced long-term incentive portfolios consisting of options, time-vested restricted stock and a performance-vested vehicle,” said Christina Young, also Managing Director of Steven Hall & Partners.  “By making regular annual awards of multiple vehicles, with differing vesting schedules and complimentary performance metrics, Boards can ensure that executives remain focused and engaged on delivering returns to shareholders over the long-term.”

About the Study
The study analyzed equity held by CEOs as disclosed in proxy statements filed in 2011 for companies listed in the S&P 500 onDecember 31, 2011, excluding four companies that went public during the year.  Value of outstanding option grants calculated as the difference between the stock prices used in the study and the exercise price of the option multiplied by the number of options held.  Full value awards valued by multiplying stock price by the number of shares held.  For additional details regarding the study, please contact Steven Hall Jr. at 212-488-5400 or

About Steven Hall & Partners
Steven Hall & Partners is an independent executive compensation consulting firm serving as outside counsel to Boards, Compensation Committees and management.  The firm focuses solely on executive compensation, Director remuneration and related corporate governance matters.  For more information, please visit and follow us on Twitter@SHallPartners.

Steven Hall Jr.
Steven Hall & Partners
(212) 488-5400

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.

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