Anonymous member· Director, Global Compensation, Meridian Health Systems
Asked in Executive Compensation ·
UK listed media company. Our policy grants long-term awards at 200% of salary for the chief executive. The share price has fallen 40% since last year's grant, so the same percentage of salary now buys two thirds more shares.
Investor guidance is clear that committees should consider reducing grants after a substantial fall. Management point out that they have already lost heavily on the shares they hold and on in-flight awards.
What reduction have people applied in practice, and is reducing at grant better than promising to look at windfalls at vesting?
0 reactions · 4 replies · 6 views
Accepted answer· by Nadia Haddad
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.
Read in the conversation ↓
James OkaforCRP, CEP
VP, Total Rewards, Halcyon Financial Group
Priya RaghunathanGRS, CSI
Head of People Analytics, Calibre Software
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.
Nadia HaddadCRP
Director of Rewards, MEA, Qasr Holdings
Accepted answer
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.
James OkaforCRP, CEP
VP, Total Rewards, Halcyon Financial Group
The twelve-month average is the thing I was missing. It gives a reduction of about 22% on our numbers and the committee does not have to defend a round figure. Taking that forward with the vesting review as a backstop.
