After a 40% share price fall, how much do you scale back the LTIP grant?

We cut the grant from 200% to 150% of salary after a 35% fall. There is no formula, but our consultants' data showed most companies with falls of 30 to 50% reducing by between a fifth and a third. Investors told us afterwards they much preferred a cut at grant to a promise about vesting.

I would argue for the opposite. A cut at grant is certain and permanent even if the price never recovers, in which case there was no windfall to prevent. We left the grant unchanged and published the test the committee will apply at vesting: if the price has recovered mainly with the market, the gain above the prior year's grant price is scaled back.

We did a version of both, and it avoided the argument. The number of shares was set using the average price over the previous twelve months in place of the usual five days before grant. With a 40% fall that produces a reduction of roughly 20% in share numbers without the committee picking a figure.

Then the report stated that the committee would review the vested value against the original intended grant value and reduce it if the gain was not matched by underlying performance. Both the cut and the backstop, and neither looked arbitrary.