Overhaul sought for share option schemes

The Greenbury committee on executive pay has begun an in-depth study of how to improve directors' share option schemes, with the help of consultants Towers Perrin.

There is widespread agreement on the committee, chaired by Sir Richard Greenbury, chairman of Marks & Spencer, that share schemes should link rewards more closely to performance, to avoid the embarrassment of creating executive millionaires whenever the stock market rises sharply.

Tim Melville-Ross, director general of the Institute of Directors and a member of the committee, said the report in June may go as far as setting out the benefits and disadvantages of different types of share incentive scheme.

But in an interview with the Independent he rejected the idea of setting out a detailed prescription for the way companies structure their schemes. He expected that the report would recommend leaving boards to choose their own methods for awarding shares, because circumstances varied too much between companies.

Specialists have devised a range of new long-term performance-related schemes to overcome some of the disadvantages of traditional share options, which have the disadvantage that they reward executives for stock market booms.

Mr Melville-Ross rejected the idea of government legislation to back reform of share option schemes, which the Prime Minister indicated last week was a possibility if the Greenbury committee wanted it.

He also thinks it unlikely that the committee would recommend legislation of any kind. Some members are, however, thought to favour a change in company law to promote disclosure, and Mr Melville-Ross conceded that if there was a need for new top pay law, disclosure of directors' earnings was the most suitable area. "I don't want to come out as vehemently opposed to new legislation in this area [of disclosure]," he said.

In a clear indication of another disagreement on the Greenbury committee, Mr Melville-Ross said he was firmly against proposals for annual re-election of non-executive directors on board remuneration committees, or even of the committee chairman.

But he would accept a recommendation that the remuneration committee should present an annual report to shareholders.

Annual re-election is backed by an influential minority of committee members including Geoff Lindey, the National Association of Pension Funds representative.

Mr Melville-Ross said annual re-election would make it hard to build an experienced board and discourage non-executives from joining at a time when demand for their services was growing. Disclosure was the key to the independence and objectivity of the committee.

The work with Towers Perrin on the award of options would not be prescriptive: "What we will probably try to do is say: here are the different ways of doing it, here are the pros and cons - you get on and decide for yourselves."

He denied recent reports that he was against share options altogether- but admitted that his support was qualified because rewards could be boosted by a bull market rather than individual company performance.

"In the case of privatised utilities, because of low flotation prices the share option idea has had a much more highly geared result than in the case of all other PLCs where it has worked quite satisfactorily," he said.

The committee is also looking at whether there should be changes in stock exchange listing requirements or in accounting standards to improve disclosure, though Mr Melville-Ross believes the stock exchange route would not be as good as encouraging best practice. He believes there will be a sharp increase in the number of companies disclosing full details of directors' pay this year.

The IoD chief also rejected special measures for privatised utilities, which should be run like any other PLC. He favoured long-term incentive schemes, linked to performance, though he said "every one of these schemes has its disadvantage - you can't solve every problem at once."

Start your day with The Independent, sign up for daily news emails
News
newsAnother week, another dress controversy on the internet
Life and Style
Scientist have developed a test which predicts whether you'll live for another ten years
health
Life and Style
Marie had fake ID, in the name of Johanna Koch, after she evaded capture by the Nazis in wartime Berlin
historyOne woman's secret life as a Jew in wartime Berlin
News
news... and what your reaction to the creatures above says about you
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn