The Employee Share Ownership Centre
The ‘Shareholder Spring‘ has stirred up turmoil in boardrooms across the UK, leaving a string of unanswered questions. Chairman Malcolm Hurlston will discuss them in his introductory speech at the Centre’s 24th European conference in Paris later this month. This excerpt will whet your appetite:
If I had told you at this event five years ago that in the year 2012 a Conservative-led UK coalition government would be legislating in order to put the brakes on executive reward packages and that FTSE ceos and their company remuneration reports would be dropping like nine-pins as a result of a ‘Shareholder Spring’ investors’ revolt, you’d have thought that I’d been hitting the sauce bottle a bit too hard the night before, but lo, all this and more has come to pass.
It’s sad to see employee share ownership being tarred with the same brush as alleged executive excess, because of course there’s nothing wrong with share options, or deferred share awards, as mechanisms to encourage staff to focus better on their jobs and, ultimately, to raise performance levels.
The Centre has never questioned the precept that outstanding rewards should follow outstanding performance by individuals or units in business, though we believe that such rewards, especially bonuses, should be paid mainly, or even entirely in equity, rather than cash, to more closely align the interests of senior executives with those of shareholders, clients and customers generally.
Let’s examine a little more closely this seductive term ‘retention bonus.’ What it’s really all about is stopping a key player decamping to a rival company and spilling the beans on what you are up to. However, a properly structured long-term incentive plan (LTIP) – with lots of deferred shares – achieves the same end because the senior executive who has an LTIP knows that if he or she leaves the company prematurely, then all or almost all the benefits of the LTIP, possibly amounting to millions of euros, will be lost. To my mind, a retention bonus is a failure of remuneration policy design.
Both the printed and electronic media are now adept at whipping up and canalising public resentment against what are seen as astronomic annual payment increases hovered up by the top brass, sometimes despite very indifferent corporate performance. The Centre sees danger to our economic system, at both macro and micro levels, if growing swathes of the public believe that rank-and-file employees are working mainly or solely to fill the boots of senior executives.
We must regain employees’ trust and the best way of doing that is to ensure, as far as we can, that all quoted companies submit annual remuneration reports which not only reward outstanding performance in the workplace, but also display social awareness by not rewarding poor or even average performance, as in an old pals act.
