* Pressure grows to ditch long-term incentive plans
* Most firms have renewed plans for three years
* Some investors cautious on blanket ban
By Simon Jessop
LONDON, April 13 Pressure on British companies
to ditch a common performance-related bonus scheme blamed for
generating excessive executive pay has not stopped many firms
from planning to stick with such schemes for another three
years, a Reuters analysis shows.
In theory so-called long-term incentive plans (LTIPs) aim to
legitimately encourage management success in boosting
shareholder returns. Yet a series of corporate scandals and
lucrative payouts has made them a target for criticism.
Lawmakers in Britain last week recommended LTIPs be phased
out from 2018, while Norway's sovereign wealth fund, the world's
biggest, wants them scrapped. The British government has also
launched a review of corporate governance including incentive
Exemplifying LTIP generosity, advertising company WPP
paid Chief Executive Martin Sorrell more than 70 million
pounds ($88 million) for 2015, more than 60 million of which
came through an incentive scheme - a payout that a third of WPP
shareholders declined to support.
However, most top companies have retained LTIPs as part of
executive pay when seeking investor approval for a three-yearly
remuneration policy at shareholder meetings.
Analysis by Reuters of company annual reports and data from
governance advisory firm Manifest shows 59 members of the FTSE
100 blue-chip stock index recently updated their
remuneration policy or plan to soon, of which 56 currently use
or plan to continue using LTIPs.
"There (is) no reason why LTIPs should be used almost
universally across the FTSE 100," Luke Hildyard, policy lead for
stewardship and governance at trade body the Pensions and
Lifetime Savings Association, said.
"We would welcome more companies moving to simpler, smaller
pay packages, perhaps involving a basic salary and a long-term
share award," Hildyard said, adding the current system acted to
drive ever-higher pay awards.
Companies use a range of data to calculate the payouts, with
many referencing the firm's share price.
The process, opponents say, can be complex, overly generous,
and can potentially incentivise actions detrimental to the
long-term interests of a company. There is also evidence their
overall economic benefits are limited.
A study by Lancaster University Management School, looking
at Britain's 350 biggest listed companies, found CEO pay had
risen an average 82 percent in real terms between 2003 and
2014/15, but economic return on invested capital was up less
than 1 percent.
Asset management industry body the Investment Association
said too much time is spent discussing pay with companies, and a
simpler structure would free up time to engage on other
As the government considers whether to implement the
recommendations by parliament's Business, Energy and Industrial
Strategy (BEIS) committee, some cautioned a blanket ban was
"We don't think there should be a one-size-fits-all approach
... companies should be able to choose the right tools for the
job," said Sarah Wilson, chief executive at Manifest, which
advises funds on how to vote on corporate decisions.
The head of governance at a leading British asset manager
said most LTIPs worked well. "In the vast majority of cases,
we'll vote in favour of them because we've analysed them in
detail and think they're based on stretching targets that
reflect the company's strategy ... there are exceptions, but you
deal with them on a case-by-case basis."
Ashley Hamilton Claxton, corporate governance manager at
Royal London Asset Management, said she was willing to consider
alternative bonus models but a phasing out of LTIPs from 2018
would be challenging.
Were the government to rule out LTIPs, Manifest's Wilson
said many firms would likely use share options, with bonuses
paid in shares with a long-term lock-in period.
"Much of it will depend on the tax implications," Wilson
said. "Some investors like LTIPs because there are performance
conditions associated with them so the BEIS committee's view
isn't necessarily universally approved."
Yet the key basis of LTIPs remains contentious.
"The idea of tying a CEO's pay to the share price is
flawed," said Stefan Stern, director of the High Pay Centre
pressure group. "Share prices move for all sorts of reasons
completely beyond the control of one human being or the board."
($1 = 0.7973 pounds)
(Editing by David Holmes)