Reed Elsevier chiefs miss £100m bonus

Reed Elsevier may change its £100m management incentive scheme after it became clear that directors have little chance of seeing the bonanza payout despite yesterday hitting the operational targets set three years ago.

Crispin Davis, the chief executive, indicated that the shares plan may now be replaced by the company's remuneration committee, to provide a chance of payouts in years to come.

Reed, which reported 2002 results yesterday, suggested that there is little prospect of reaching the terms of the existing long-term incentive plan, which would have paid out some £10m in shares to Mr Davis and another £90m to be shared among 39 other managers.

The scheme was dependent on absolute share price performance plus the level of dividend between May 2000 and this year. To be triggered, the share price would have to hit 720p this year for 40 consecutive trading days – equivalent to a 72.8 per cent total shareholder return over that period.

The stock closed up 12.5p at 443.5p yesterday but that is barely up on the Reed share price of 436.5p when the plan was struck. In theory, the management could still be in line for the payout, as the current scheme has two additional periods, in 2004 or 2005, but the total shareholder return would have to climb to 107.4 per cent and 148.8 per cent respectively. Since 2000, equities have plummeted and Reed shares have not escaped the rout.

Paul Gooden, analyst at Morgan Stanley, said: "Realistically they've got no hope [under the current incentive plan]. I think it would be good if they did something to stem possible departures of senior management as a result."

Mr Davis emphasised that the scheme which is now in place would not be revised but the remuneration committee "might" replace it with a different plan. He said the three-year operational targets, announced when he took control, would be met. "We have delivered on that strategy, both in terms of execution and financial performance. We are on track for our 2003 objectives. That's three years of double-digit earnings growth," he said.

The company reported "adjusted" profit before tax of £927m for 2002, and earnings of 28.5p a share, at constant currencies. However, several analysts questioned the validity of the £111m restructuring charge being taken after operating profit, when it could be seen as a regular item to cover cost-cutting measures. The restructuring charge for 2001 was similar.

Reed said it now pulled in more than £1bn of its £5bn revenues from internet activities. Mr Davis said that put Reed in the top three companies in the world, not counting software businesses, for internet sales – along with AOL and Amazon.