Extract from IDS Executive Compensation Review 312

Boardroom share incentive grants moving upwards

In today’s boardrooms, share-based incentives are universally seen as the key to aligning the interests of directors and shareholders. Against this background, there has been a noticeable ratcheting up in the value of share grants to directors as companies have sought to leverage up performance incentives. Using our FTSE 350 database, we look at the size of the actual grants made to directors and how they have changed over the last two years.

In total, around 400 FTSE 350 executive directors received option schemes and long-term incentive plan (LTIP) share grants with a face value equal to just over £440 million during the 12 months to July 2006. Of the grants made last year, options had the highest aggregate value - £232 million compared to £208 million awarded from LTIP schemes. Examining the same awards more recently, we found that, on the back of a rising stock market, the value of the grants had already gone up by £210 million by December 2006 to just over £650 million , suggesting that if current trends continue the future incentive payout prospects for FTSE 350 directors look bright.

Although these values do not represent the final gains that may or may not be made from share-based incentives, they do provide a good insight into shifting policy incentive practice, in particular against a background of an ever-increasing emphasis on paying for performance. This article examines the changing nature of incentives and provides tables showing median values of incentive provision in FTSE-listed companies over the last two years.