Long-term incentive plans (LTIPs) are an “effective tool” for integrating executive pay with performance, according to a leading remuneration consultant, despite calls from politicians for an end to such remuneration structures.
Gordon Clark, a partner at Mercer Kepler, told The Times that LTIPs need to be “carefully planned” with measures to reward “the right performance”. He said many companies use them “effectively” so a “blanket ban” would be “counterproductive”.
In a report published earlier this month, MPs on the House of Commons business, energy and industrial strategy committee (BEIS) said no new LTIPs should be put in place from the end of this year.
The report said: “We conclude that LTIPs should be phased out as soon as possible. No new LTIPs should be agreed from the start of 2018 and existing agreements should not be renewed.
“We recommend that the FRC [Financial Reporting Council] consults with stakeholders with a view to amending the [corporate governance] code to establish deferred stock rather than LTIPs as best practice in terms of incentivising long-term decision making.”
MPs want to see pay based primarily on salary, plus long-term equity, to divest over a “genuinely long-term period”. They also wanted “clear criteria” for bonuses that are “genuinely stretching” and “aimed to provide incentives rather than just reward”.
Norway’s sovereign wealth fund, the biggest in the world, also said this month it wanted to see the phasing out of LTIPs.
