Call to replace `unfair' share options schemes
Thursday 23 February 1995
The joint City-industry group, set up by Michael Heseltine, the President of the Board of Trade, and chaired by Paul Myners, chairman of Gartmore, the fund management group, said in a report published yesterday that there was "growing concern that option schemes are not achieving the desired results".
Although share option schemes have been in existence for 20 years, they have not resulted in widespread ownership by British executives of shares in their own company. Most sell their shares as soon as their options become worth anything. They are "too much of a one-way bet for the option holders", Mr Myners said yesterday.
In its report, the task force suggested that the best way forward lay in the use of restricted share schemes that encouraged longer-term share ownership by executive directors of companies.
Such schemes typically tie the number of share options that directors can earn to the long-term performance of their companies. Mr Myners said his group favoured option schemes that tied returns to a company's performance relative to companies of the same size, or in the same business.
Although it has no statutory powers, the study group was set up with the backing of the DTI's Innovation Unit, and is likely to carry weight in the increasingly political debate over the scale of executive pay awards.
The group's remit was to suggest practical ways of improving the relationship between companies and institutional shareholders.
Apart from Mr Myners, one of the City's better-known fund managers, the task force included senior industrialists and fund managers, including James Joll, finance director of Pearsons, Huw Jones, director of Prudential Portfolio Managers, and Richard Lapthorne, finance director of British Aerospace.
The group made a number of recommendations for improving relations between companies and shareholders.
Calling on companies to be more explicit about their strategy and dividend policy, it said that they should give a long presentation about their stategy each year, including detailed accounts of their capital investment plans.
Annual meetings were an "area of despair" for almost all companies, Mr Myners said. The group said it wanted institutions to end their "voting apathy" at annual meetings, and take a more active role in quizzing management about plans and performance. Institutions should also take more care to prepare themselves for meetings with managements.
The report, part of the Government's continuing studies into the competitiveness of the British economy, acknowledged that there had been some improvement in the relationship between companies and investors, but said there was still a need for more constructive dialogue. There was a lack of confidence between the two sides, it added.
In a separate report yesterday, the accountants Coopers & Lybrand said that more than 40 per cent of UK companies still failed to base option schemes on any kind of performance measure. Of the rest, many had only introduced them in the past year or so, partly as result of new guidelines drawn by institutional shareholder groups.
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