Page 135 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 4. The Stakeholders 121

Incentives
Time Period Salary Benefits Perks Short Term Long Term

1900–1924 Low Low Low Low Low
1925–1949 Low Low Low Low Low

1950–1974 Low Low Low Low Low
1975–1999 High Low Moderate High High

2000–Present High Low High High High
Table 4-5. Employee interest in executive compensation

but also were handsomely rewarded for downsizing other people out of jobs and reducing the
pay and benefits of those remaining.

THE SHAREHOLDERS

A shareholder is one who has purchased and owns one or more shares in a company. Typically,
these are shares of common stock, entitling the stockholder to vote on election of directors
and other subjects. The other type of stock ownership would be in preferred stock, which
typically has a better dividend and liquidation right but more limited voting rights. Common
stock is by far the most commonly used—perhaps a good reason for its name. (When the
company buys back stock from its shareholders, it goes to its own treasury and is called
treasury stock.) Such shares are available for use again (e.g., when stock options are exercised,
defined contribution plans paid out, or stock units converted to shares of company stock)
unless restricted by state law, certificate of incorporation, or company bylaws.

Type of Shareholder
Shareholders include executives, members of the board of directors (elected by shareholders),
and others (individuals and groups). Initially, during the threshold stage, executives are also
the owners. As they see the opportunity to expand given more capital, they may first turn to
venture capitalists, but at some point decide to make the initial public offering (IPO)
described in the first chapter. At that point a portion of the business moves from the owner-
executive to the investor-owner. By the time the company is well advanced in the growth
stage (unless it is privately held), the amount of stock in family hands has not only diminished
as a percentage of the total, but the owners are no longer running the company. Professional
managers have been hired.
In some situations, the company may not be required to get shareholder approval but
must disclose actions taken or being considered to ensure shareholders can make an informed
decision on whether to buy, hold, or sell the stock. Some companies even seek shareholder
opinion on subjects. This could be by mail, telephone, and/or the Internet.
For many years, the individual owner of record was the most common shareholder,
making his or her own decision to buy or sell stock. Now retail brokers hold many shares,
buying and selling with often no more instruction than to achieve an expected return.