British companies should reconsider their use of long-term incentive plans in favour of restricted share awards, according to recommendations by a management think-tank.
Long term incentive plans are designed to boost performance, however the system has faced criticism as the rewards are often not tied to a company’s share price.
A report by the Purposeful Company, a think-tank established in 2015 with Bank of England support, said a quarter or more of companies should instead consider restricted or deferred share models, the Financial Times reported.
Under that system, part of an annual bonus is paid out subject to conditions taking performance into account over a longer period.
Purposeful Company chair Clare Chapman told the FT: “A quarter of all companies could and should shift their executive remuneration policies away from long-term incentive plans and towards simpler plans like restricted shares.”
The report, which included responses from shareholders, companies, asset managers, proxy advisors and remuneration consultants, said four-fifths of investors and three-quarters of companies said deferred share schemes were the best system for certain firms and industries in some situations.
However, some investors and firms also said the risks of using deferred share schemes could include payment for failure and fewer incentives.
Read more: Dixons Carphone executives delay bonuses
In September more than 50 per cent of Ryanair shareholders voted against a long-term incentive plan for senior management and investor advisory firms criticised Berkeley Group’s plans, urging the housebuilder to improve the alignment between performance and payout.
Electrical goods retailer Dixons Carphone faced backlash over chief executive Alex Baldock’s long-term incentive plan in August.
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