Move to ginger up options

THE REWARDS of share option schemes must be linked to sustained improvement in underlying financial performance, according to new guidelines from two leading groups of institutional shareholders, writes Paul Durman.

The Association of British Insurers and the National Association of Pension Funds have decided against prescribing any one measure of long- term performance. Past favourites such as earnings per share growth have proven to be manipulable.

Instead, the associations want the remuneration committees of listed companies to determine the best yardsticks according to the particular circumstances of the business. These details should be published both when the scheme is put forward and in subsequent annual reports.

Geoff Lindey, vice-chairman of the NAPF's investment committee, said: 'This document will more or less force companies to have properly constituted remuneration committees.' ABI and NAPF members are likely to vote against proposed option schemes unless the company has a remuneration committee consisting wholly or mainly of non-executive directors.

Institutions will judge the effectiveness of non-executives on the adherence to the share scheme guidance. Those who fail to fulfil their responsibilities 'might find it a little bit difficult to be re-elected', Mr Lindey said.