A Single LTI or Equity Plan Can Not Do Everything, Although Some May Claim Otherwise…..
04/07/2005
mail.png

Surprising is not quite the word we had in mind when we started to analyse Australian executive pay. But by the time we had finished reviewing the executive pay of the ASX 300 for GuerdonData™, we could not think of a more apt term.

One source of our surprise was the disparity between the directors’ report pay rationale (required under section 300A of Corporations Act) and the likely impact their actual pay structure would have on executive behaviour. Over 85% of ASX 300 companies used the terms “attract, retain and motivate”. Yet fewer than 30% had equity or LTI elements in place that could support all three.

A basic summary of LTI/equity plan objectives is provided below.

Direct achievement of specified business objectives
• Performance shares
• Performance rights
• Long term cash

Share price appreciation
• Traditional share options
• Premium priced share options
• Performance vested options
• Share Appreciation Rights (SARs)

Relative share price appreciation
• Indexed options
• Performance vested options

Align executives with shareholder interests
• Time based restricted shares

Minimise dilution
• Long term cash
• Share Appreciation Rights
• Performance shares
• Performance rights
• Time based restricted shares

Reduce financial accounting impact
• Long term cash
• Performance shares
• Time based restricted shares

Attraction
• Share options

Retention
• Time based restricted shares

Note that many other variations are possible depending on specific company history, competitive circumstances and other objectives.

It seems as if many Australian companies are trying to shoe horn all their pay objectives for the CEO and other key executives into one or two LTI or equity vehicles. Simply put, this is not likely to work.

© Guerdon Associates 2021
read more Back to all articles