'Use share prices to set bonus'

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The Independent Online
PERFORMANCE of a company's share price should be used as a measure to determine whether directors should benefit from bonus schemes, the investment committee of the National Association of Pension Funds suggests.

In a discussion paper, Share Schemes - a Consultative Document, the NAPF proposes a new way of measuring the performance of a company.

It suggests that senior executives should only be rewarded under share option schemes if the share price shows sustained outperformance relative to an agreed measure, such as the FT all-share index and the index for the sector in which the company operates.

The approach differs from that adopted by the Association of British Insurers, which advocates using growth of earnings per share as a performance measure.

Richard Regan, the ABI's investment affairs manager, said yesterday: 'All measures have deficiencies. We have chosen long-term growth in earnings per share because it has the fewest deficiencies.'

The NAPF argues that the final figures used in earnings per share can be altered by various accounting devices.

Ron Amy, benefits director of Grand Metropolitan and deputy chairman of the NAPF's investment committee, argued that the share price performance gave a measure not only of the growth in earnings, but also its perception in the marketplace.

'It is an overall measurement of performance, because if you do not outperform the market you are not enhancing shareholder wealth,' he said.

However, the NAPF is keen to point out that its idea is not at odds with that favoured by the ABI. Mr Amy said they were two different approaches which could be complementary, perhaps using share price performance as a qualifying threshold.