When The Boss Has A Big Stake

Do shareholders tend to profit when top executives have a sizable stake in the fortunes of their companies?

To find out, Wyatt Co. recently analyzed the stock market performance of 105 large U.S. companies over a five-year period in relation to company shares owned by their chief executive officers. Ownership was defined as the ratio of the dollar value of a CEO's holdings (excluding stock options) to his or her base salary.

Wyatt found that the top half of the companies in terms of chief executive ownership posted average annual returns of 11.4% over the five years, compared with 7.3% for those in the bottom half. The results, which were similar when industry groups were analyzed separately, suggest that it can pay to invest in companies whose bosses have a lot riding on their performances.

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