Value of S&P 500 CEO Outstanding Equity Awards Surges +35.8% in 2012

Value of S&P 500 CEO Outstanding Equity Awards Surges +35.8% in 2012

January 23 2013

S&P 500 CEOs experienced an increase of +35.8% in the value of outstanding equity awards during 2012.    This +35.8% increase far outpaced the +1.2% increase these executives experienced on similar awards in 2011.  These results are based on a recently completed Steven Hall & Partners study focusing on this topic; complete study details are available here as well in the below slideshow.

During the same period, aggregate market capitalizations for the S&P 500 increased by +12.1%.  The disparity between the +35.8% increase observed in the value of outstanding CEO equity awards and the +12.1% increase in company market capitalizations was driven largely by the increase in the value of options held by S&P 500 CEOs.   Options are a highly leveraged equity vehicle which can generate significant gains for executives if stock prices increase above the exercise price; however if stock prices fall below the exercise price, the in-the-money value of these awards falls to $0.  Full value awards observed increased +15.2% in value, which more closely tracks the +12.1% increase found in market capitalizations.

SH&P’s study also found that the number of underwater options (those in which the exercise price exceeds the current stock price) in the S&P 500 decreased significantly due to the market rise in 2012.  At the end of 2012, 47% of S&P 500 CEOs had at least one underwater option grant outstanding, a substantial decrease from December 2011, when 65% of S&P 500 CEOs had at least one award underwater.  In addition, the study found 25% of all S&P 500 options were underwater as of December 31, 2012, down significantly from the 37% which were underwater as of December 2011.