A growing number of corporates in the US and Europe are considering switching their executive pay arrangements from share options to performance-based share awards, according to latest research from Mercer Human Resource Consulting. Investor pressure and the corporate governance environment are prompting the remuneration re-think.
Share options schemes are commonplace for executives in the US, but a view persists that more directly performance-based initiatives tend to encourage long-term retention of shares by employees.
Depressed share prices, corporate governance issues and international accounting changes have all contributed to rising European interest in performance based initiatives. The UK is relatively unaffected as investor pressure has already led to the application of performance conditions to long-term incentives.
Clare Turner, senior consultant at Mercer Human Resource Consulting, says: "Unlike option plans, performance-based share awards deliver value even if share prices remain flat. These plans are also more likely to meet the growing demand for incentives that encourage long-term employee share ownership, and align employee interests with shareholders to raise performance."