Different models and approaches to directors’ pay should apply in different situations if the current model is to change radically, according to FIT Remuneration Consultants in a recent briefing. Opinion formers, shareholders, voting guidance services and executives should abandon some of their sacred cows and listed companies should have the flexibility to offer either time-vested restricted shares or a bonus plan with higher and longer periods of deferral, the briefing says.
However, if restricted shares (which tend to vest with time and service) are to replace performance shares, there will need to be an ‘exchange rate’ between the two, which may result in maximum award levels falling considerably. At the same time, new mechanism will be needed to prevent these restricted shares becoming payments for failure, FIT adds. The briefing was prepared in advance of the first meeting of a new working group established by the Investment Association (IA) to examine the future of executive reward.
‘There may well be common themes and principles in the ways in which executive pay evolves but different solutions will be needed for different situations and pay design should, in our view, remain very specific to the situation (and company) in question. We hope that the IA will recognise this, be able to gain a consensus across the community of institutional investors even beyond its membership and be courageous in equipping companies to pursue simplification.’