Report questions executive bonuses

The High Pay Centre is challenging the worth of long term incentive plans (LTIPs) and bonuses as incentives for business leaders.

The think tank says that the question arose as part of its analysis of the first “pay ratio” reports, which found some limitations to the disclosures, but also provided insights into low pay and inequality across corporate Britain.

This included what it describes as a fundamental problem with how executive pay is determined, since LTIPs and bonuses form the largest component of listed companies’ executive pay packages.

It examined bonuses and LTIPs at FTSE 100 companies as a proportion of the maximum available under the terms of their pay policy, as documented in their annual reports. They found that LTIPs almost always pay out and very high pay-outs are common. Bonuses are even more likely to pay out than LTIPs, and usually pay out a significant proportion of their value.

According to the centre, the susceptibility of LTIP targets to being overtaken by events raises the question of whether they are a good mechanism for rewarding good leadership.

Meanwhile, the frequency with which performance outcomes deviate from the range of possibilities set out in LTIPs shows the limitations of boards’ and CEOs’ abilities to forecast and determine business performance, it says. This challenges the notion of the superstar CEO and the imperative to pay vast sums of money to attract or retain executives.

https://highpaycentre.org/wp-content/uploads/2021/11/Bonuses-LTIPs-4-1.pdf