Page 145 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 4. The Stakeholders 131

Not withstanding a few severe declines, all are aware that the stock market has had a
long-term successful history, albeit not without a number of negative years (the year-end
value was less than the beginning-year value). More specifically, for the DJIA, the number of
negative years by decade are as follows: 1900–09 (five), 1910–19 (five), 1920–29 (two),
1930–39 (four), 1940–49 (four); 1950–59 (two), 1960–69 (four), 1970–79 (four), 1980–89
(two), 1990–99 (one), and 2000 to date (four).
In 1998 the SEC required the stock market to implement circuit breakers to stop a
decline in market prices. A 10 percent decline during the day would halt trading for an hour,
a 20 percent decline would stop trading for two hours, and a 30 percent or more drop would
halt trading for the day.
Significant declines have been far more prevalent then upside adjustments. The greatest
relative increase on the NYSE was October 21, 1987—a gain of 10.2 percent. All other
increases were less than 5 percent. See Appendix A for a history of the DJIA. Significant
milestones in the DJIA are shown in Table 4-10.

Milestone Date Percent Gain
40.94 (inception) May 1896 —

1000 November 1972 2443
2000 January 1987 100
3000 April 1991 50

4000 February 1995 33
5000 November 1995 25
6000 October 1996 20

7000 February 1997 17
8000 July 1997 14
9000 April 1998 13

10000 March 1999 11
11000 May 1999 10

12000 October 2006 9
Table 4-10 DJIA milestones

Although the NASDAQ began in February of 1971, the significant increase in stock
prices occurred in the 1990s, as shown in Table 4-11.
The first half of the 20th century was dominated by the individual shareholder;
however, change was underway. By the last quarter of the century, pension and mutual funds
were dominant. As shown in Table 4-12, interest in executive pay became very significant.
The focus was on how not how much executives were paid. As long as there were rewards for
building shareholder value, the institutions supported their pay program. Not surprisingly,