Digital Realty will require each of its executives and directors to own an amount of company stock commensurate with their role and salary to bring company leadership’s interests in line with shareholders’, the San Francisco-based data center services giant announced Monday.
Under the new rules, the company’s CEO will be required to own its common stock worth six times his base salary, and his direct reports will have to own stock worth three times theirs. The proportion for “certain other executive officers” is 1.5 times their base salary, and directors will be required to own stock worth 2.5 times the number of shares they receive under Digital’s incentive award plans.
While the practice of using executive stock ownership requirements as additional incentive for company leaders to perform has been around for decades, there has been more focus on it in recent years, according to Towers Watson, a business consulting firm. A recent study by the firm found that 90 percent of Fortune 500 companies had stock ownership guidelines.
The common requirement for CEOs has been to own five times their salary in company stock, with multiples decreasing down the corporate ladder, according to Towers Watson.
While these requirements are usually based on execs’ base salaries, base salaries are usually only a portion of their total compensation.
Digital Realty CEO William Stein’s total 2014 compensation, for example, was about $5.62 million, consisting of a base salary of $750,000, a $1 million bonus, and performance-based incentives Digital gives its execs, according to the company’s SEC filings.
Stein, Digital’s former CFO, became its permanent CEO only in November of last year, replacing the company’s founding CEO Michael Foust. Foust’s total 2014 compensation was about $5.58 million, $860,000 of which was his base salary.
Scott Peterson, the company’s chief investment officer who orchestrated its recent $1.9 billion acquisition of Telx, earned a total of about $3.26 million in 2014. His base salary that year was about $460,000.