Corporate Governance: Share Ownership Guidelines in the TSX Mid-Cap

Executive share ownership guidelines require executives to own an equity stake in their company, with the intention of promoting an alignment of interests between the company’s executives and directors, and shareholders. Establishing share ownership guidelines is not a requirement for Canadian companies, but it is typically seen as an indicator of good corporate governance.

Share ownership guidelines are commonly defined as a % of annual salary, occasionally with specifications such as a post-employment holding period or a mandatory time limit (typically up to 5 years after being appointed) to reach minimum ownership targets. It is also very common for organizations to allow their executives to fulfill their ownership requirements with equity received from their long-term incentive programs.

What are typical executive share ownership guidelines in Canada’s mid-market?

Figure 1 shows the percentage of companies which have established share ownership guidelines, based on data from the top 5 paid executives of 100 TSX mid-cap organizations. Share ownership guidelines are prevalent at the majority of organizations in the Canadian mid-market, with most CEOs having share ownership guidelines of at least 3x their annual salary and the other named executives having share ownership guidelines between 1x to 3x of annual salary.