Pensions, 401(k)s and social security might be critical for most people planning their future. But not so much for CEOs who have steadily accumulated massive pieces of their companies worth billions.
At the extreme, there are eight current CEOs of companies in the Standard & Poor's 500 index, including Jeff Bezos of Amazon.com (AMZN), Warren Buffett of Berkshire Hathaway (BRKA) and Mark Zuckerberg of Facebook (FB) that own shares in their companies valued at $2 billion or much more apiece, according to a USA TODAY analysis of data from S&P Global Market Intelligence. Bezos' massive and rapidly appreciating stake in his online retailer is so lucrative — valued at $67.1 billion — he passed Warren Buffett as the current CEO with the biggest piece of his company.
The growing trend of companies paying CEOs in stock, sometimes in lieu of various retirement perks, has shifted the balance of power between companies and their chief executives. CEOs of companies in the Standard & Poor's 500 own a median value of $17.3 million in their company stock. Most walk with that money no matter if they have official retirement or severance plans. Clawing back these gains, if there's wrongdoing, is difficult at best.
"Compensation plans are set up so executives' motivation is aligned with creating value for shareholders. That makes sense," says Dan Marcec, director of content at executive compensation firm Equilar. But when CEOs become extraordinarily wealthy on company stock, and the company doesn't have much financial leverage, does that create unintended consequences? "That's an interesting question," Marcec says.
The massive value of CEOs' stock holdings came into sharp focus this month following the unexpected retirement of longtime Wells Fargo (WFC) CEO John Stumpf. Stumpf stepped down amid a banking scandal where employees allegedly opened upward of 2 million accounts without customer consent. Stumpf didn't receive severance or retirement from the bank but had accumulated enormous wealth over the years through stock grants to the tune of $134.1 million which he still walks with, says Equilar.
Wells Fargo's board of directors may consider clawing some of that back, but it's a difficult legal challenge once the shares are owned, says Frank Glassner, CEO of executive pay consulting firm Veritas Compensation Consultants.
It's not an accident. Modern corporate governance practices call for top executives to own six-times their annual base salary in company stock, says Marcec. That would mean the median CEO would need to own about $6 million in company stock to satisfy investors who want to see executives' fortunes tied with the company's.
Most of the CEOs that own the most valuable slices of their companies, too, are the founders of the most successful businesses in the world. The gain Bezos has had is breathtaking. His stake in the company has grown $11.8 billion just this year.
Investors are also hoping Buffett, 86, never retires. But with stock holdings valued at $63.9 billion in Berkshire Hathaway, that would pay for plenty of Diet Coke in his golden years. Then there's Zuckerberg, who at just 32 years old, has seen his share in Facebook rise to a value of $53.4 billion.
Some say the high level of stock ownership is a win for other investors.
"You do want to see the individual (officer) clearly having skin in the game and having their interests aligned with shareholders'," Glassner says. "There's no better way than to make them shareholders, too."
