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KEYPOINTS
CEOs compensated primarily in stock are incentivized to drive long-term company growth, aligning their interests with shareholders.
Equity-based compensation encourages CEOs to focus on increasing the company's value, as their personal wealth is tied to stock performance.
High stock ownership by CEOs amplifies their commitment to the company’s success, especially in cases like Fortinet, Microsoft, and HubSpot.
When evaluating a company's near- to medium-term growth potential, it's crucial to understand the incentives driving its leadership. One powerful indicator of alignment between a company’s CEO and its shareholders is the structure of the CEO’s compensation. Specifically, companies where the CEO’s remuneration is heavily weighted in stock options, rather than a high salary, may present stronger growth opportunities for investors. Here’s why:
The “Salary Man” Mentality vs. Ownership Mindset
CEOs who receive a large salary but little in the way of stock compensation may operate with a "salary man" mentality. Their personal financial incentives are tied to showing up and maintaining the status quo, rather than driving the company's long-term success.
Contrast this with CEOs whose compensation is mostly tied to the performance of the company's stock. These CEOs are directly incentivized to grow the value of the company, as their own wealth depends on it.
Where to find CEOs & other C-lvl execs compensation breakdown
You can find these info on salary.com/
Search for your intended companies, look under the Executive Compensation, and search for the respective personnels
Notable Examples
Two great examples of CEOs who are aligned with their shareholders are Ken Xie of Fortinet and Satya Nadella of Microsoft.
In 2022, Ken Xie earned $16 million in total compensation, with a whopping $15 million of that in stock options.
Similarly, Satya Nadella received $48.5 million in compensation, of which $39 million was in stock awards.