KMP Report No. 19 : The LTI Revolution

“One in 10 of Britain’s top 100 companies are considering ditching long-term incentive plans,” according to the Financial Times.

This trend follows the release of reports questioning the complexity and efficacy of current long term incentive (LTI) schemes and what has been labelled by some as a second “shareholder spring” in the UK, where investors protested the remuneration levels and policies at high profile companies.

While the average support for FTSE 350 companies remained stable, the number of companies with a significant vote (>20%) against their remuneration report increased, according to KPMG. Deloitte highlighted that the number of FTSE 100 companies receiving a “strike” in Australian terms (>25% dissent) has doubled from the 2012 to 2016 AGM season.

In parallel, major institutional investors and proxy advisors have been changing their voting guidelines to enable companies to deviate from the usual TSR LTI formula.

The latest addition to the debate has been the UK government’s consultation on corporate governance.

The consultation drew attention to concerns about current LTI plans and asked how long-term incentive plans could “be better aligned with the long-term interests of quoted companies and shareholders”.

Published submissions by various investors and associations indicate there is significant momentum for simpler LTI plans that Boards, executives, shareholders and the public can understand. If this momentum is maintained, it could lead to the retirement of traditional long term incentives for many organisations.

Would and should this occur in Australia? Egan Associates has completed a report that considers the facts and the options.