James Moore: Not long-term and not much of an incentive

Click to follow
The Independent Online

Outlook A long-term incentive scheme is the gift that keeps on giving if you're a corporate executive. When bosses – and they do this a lot at banks – say they've given up their bonuses for whatever reason, it's not always completely true.

At some point down the line they know there's a good chance that a complaisant remuneration committee will hand them a crate of free shares through the long-term incentive scheme.

Remuneration reports are often extraordinarily opaque on how much these are worth. The same goes for the performance conditions attached to them, if there are any.

That's how boards like it: they might be highly embarrassed if people realised just how much executives can get their hands on and just how weak their performance criteria are.

If somnolent City institutions don't understand the conditions (or can't be bothered to make the attempt) it also makes them easy to manipulate when performance doesn't measure up, so the executive team still gets paid.

Pirc said it believed that such schemes were neither long term, nor effective as incentives, so in future it would recommend that its subscribers oppose all new ones.

The usual gaggle of financial spin doctors will no doubt huff and puff and claim the Pirc is an "outrider" that isn't taken seriously by people with real clout in the City. The interesting thing is, however, that over the long term Pirc's been on the right side of most of the arguments about governance. Institutions with their clients' interests at heart also have an incentive to listen to what it says because it could result in better run businesses that provide better returns.