Call to toughen rules for share schemes

BLOCKLEY, U.K. - March 13, 2017 - PRLog -- Proposals aimed at limiting the scale of free or low-cost share awards made to company executives have been published by the financial research consultancy Fintellect.

The proposals seek to achieve a balance between encouraging entrepreneurial enterprise and meeting some of the more vocal criticisms from institutional investors aimed at public companies that they regard as over-generous in rewarding their top executives.

Last week the global marketing group WPP announced that its chief executive Sir Martin Sorrell had been awarded shares worth £41.5 million before tax, bringing the value of his total investment in the company to £385 million.

"No-one other than an envious green-eyed monster would question the man's business achievements", Fintellect's director Bob Willott writes in Marketing Services Financial Intelligence.  "But that is not the issue.  The question is: why would a founding shareholder need any more shares?"

"Sir Martin has already accumulated massive wealth and, many would say, deservedly so.  That wealth grows in response to the further improvement in the profits earned by WPP, begging the question: is that not reward enough?

"Why dish out even more shares which dilute the interests of other shareholders and perhaps could be more usefully reserved to motivate emerging executives who might, for example, secure the longer term continuity of management?"

Willott suggests that the concerns of investors could be met by introducing the following two new rules without doing unnecessary damage to those company executives who have only a small shareholding, if any, and who would be motivated by the prospect of a bigger share stake:

1.   Options and similar performance-based share awards should not be granted to an employee of a public company who already holds shares and options that together account for more than a statutorily specified percentage of share capital issued or under option – say 15%.  (That would not prevent an executive from buying more shares on the open market for cash.)

2.   Options and similar performance based share awards granted to an employee of a public company in any one financial year should not exceed the higher of a specified percentage of the aggregate shares and options held by that employee at the start of that period and an absolute percentage of the company's issued share capital – say 5%.

To police such a regime, it is proposed that companies would need to disclose any award that breached the prescribed limits, with particulars of the nature and extent of the breach.

ENDS

See www.fintellect.com