Private Company Employees Own More of Their Firms

August 9, 2004 (PLANSPONSOR.com) - Employee stock option grants in private companies increased from 14% to 18% of company ownership in 2004.

Even though companies are giving more of their corporate shares to workers, the higher ups still retain the lion’s share. When company founders are included in the mix, ownership of shares among company employees jumps to 27%, according to Syzygy Consulting Group’s 2004 Pre-IPO and Private Company Total Compensation Survey.

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Further, CEO ownership nearly doubled from 5% to 9% of the company in 2004. CEO cash compensation also increased from a median of $238,600 to $301,700, a 26% jump.

The move towards greater employee ownership of private company shares comes as private companies are satisfying investors with bigger payoffs in initial public offerings (IPOs) and acquisitions this year while also richly rewarding and retaining key talent – especially key executive talent, Syzygy found.

“We are seeing a direct correlation in increased stock compensation and the success that companies have in attracting outside buyers and investors,” said David Broman, Syzygy’s CEO. “The data show that stock options are key to making a private company thrive and create jobs.”

Syzgy also attributes the growth of stock compensation to new corporate governance rules. More companies have separated the Chairman role from the CEO job, and the requirement to have independent Directors on the Board requires extra talent. To attract this talent, companies must make stock based compensation vehicles available, since board members are typically paid with stock.

“Board members, especially Chairpersons, are grabbing a bigger share of the company through stock compensation,” said Broman. “The aggregate stock compensation provided to Boards of Directors jumped to 4.6% in 2004 and an independent Chairman of the Board can now command 2.5% of the company.”

A copy of the full survey can be obtained at www.syzygyconsulting.com .

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