The Association of British Insurers (ABI) has said lengthy averaging periods for total shareholder return (TSR) performance measurements used in long-term incentive schemes should be avoided.
It has issued a set of remuneration guidelines which also state that where companies offer cash supplements in lieu of pension arrangements these should be separately disclosed. These cash supplements, it says, are becoming more widespread due to A-day pensions tax simplification changes.
The ABI guidelines also now state for the first time that companies should explain how they intend to satisfy share plan awards, for example through issuing shares or acquiring shares on the market and holding them in treasury or in employee trusts until needed by employees.
Many L-tip awards and to some degree share options have TSR performance targets, and average their start and end share prices by reference to average share prices over periods of between one and 12 months.
Although the ABI has not said what it considers to be “lengthy”, Nicholas Stretch, partner of share incentives at Cameron McKenna believes it does not like the 12-month averaging periods.
Stretch adds that the guidelines on disclosing how share plan awards are to be satisfied “will force companies to go public on what they are doing”.
“I think many companies until now have thought it is just something they are going to decide on an ad-hoc basis and now having to disclose their policy on this will force them to play their hand and will restrict them in the future,” he said.