Stay updated with free Executive Pay news by subscribing to our newsletter.
Receive a daily email called myFT Daily Digest that summarizes the latest Executive Pay news every morning.
The increasing cost of living in the UK has resulted in renewed concerns about income inequality. As companies announce their profits in the coming weeks, the high salaries of chief executives are likely to face public criticism. However, proponents like Julia Hoggett, the head of the London Stock Exchange, argue that competitive executive pay contributes to the competitiveness of the UK.
Critics point out that the median pay of FTSE 100 CEOs is 100 times higher than that of the average worker. In response, meritocrats argue that CEOs of S&P 500 companies earn three times the remuneration of their UK counterparts.
One point of agreement is that the complexity of executive pay in the UK diminishes its incentive value, regardless of the amount. The widespread use of performance share plans has resulted in executives waiting several years before receiving their rewards. Typically, these long-term investment plans span three years before executives can receive an award, followed by another two-year waiting period before taking ownership.
This extended timeframe allows employers to reclaim the money if necessary. However, the fact that most post-award changes to pay are negative highlights the downside risks and diminishes the perceived value. Additionally, long-deferred rewards often result in large packages for executives during years of business decline.
One potential solution is to combine share plans with restricted stock units, a common practice in the US. Under these hybrid schemes, recipients cannot claim ownership of restricted stock until a vesting period ends. However, the number of awarded stocks is typically fixed at the beginning rather than determined later based on performance.
Unfortunately, UK shareholders have not responded favorably to restricted stock. The perceived negative impact of receiving more than 20% of votes against a pay plan presents a significant hurdle for change, according to James Harris of professional services firm Alvarez & Marsal.
It might be worth reconsidering this viewpoint. Advocates argue that CEOs need bonuses to feel the same motivation that ordinary workers receive from flat rate pay. Restricted stock offers a viable compromise in this regard.
The Lex team is eager to hear your thoughts. Share your opinions on restricted stock in the comments section below.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
