ESOP Companies Show Strong Five-Year Stock Growth

The new NCEO survey on ESOP executive compensation shows that responding companies had impressive stock price growth between 2003 and 2008:

There is no easy way to compare this to broader market indexes. First, the indexes are always calculated as averages. Here, we are looking at individual returns by category. The median for this group would be at least a 10% return; the mean (average) for the group can only be guessed at, but probably is about 20% or more higher. That's because in almost any market, the median performance of the companies in the index lags the average because values can only drop to zero but can rise to any number. For instance, Meb Faber in her book The Ivy Portfolio shows that between 1983 and 2007, only 25% of the stocks had a net positive return. The 2003-2008 period was also peculiar in that the market fell so sharply in 2008, ending about where it was in 2003. During that period, however, the Wilshire 5000, the largest market index, rose as fast just over 10% per year from bottom to its pre-mid-2008 peak.

Also, this sample, while representative of ESOPs in terms of size, industry, etc., is not a random sample—it consists of companies willing to answer the survey. Even with all these caveats, however, this performance is very impressive. I suspect that a much smaller number of non-ESOP companies in this time period have a 10% or greater average return.

The new study covers base, incentive, and equity compensation levels for six officer levels in 317 ESOP companies. For details on how to obtain the new ESOP Executive Compensation Database, go here.