FINANCIAL PARTICIPATION
Employers warned of perils of share options
The ever-tightening labour market and increased pressure from dot-coms has pushed US-style reward packages, replete with share options, higher up the business agenda. But there are dangers in concentrating too much on option- and share-based incentives for staff in their 30s and 40s, according Peter Brown of the Top Pay Research Group.
Speaking at major conference organised by the International Communications and Management Group, Brown warned the audience of directors and HR professionals in financial institutions that it was essential to provide a more balanced package of salary and bonus.
At this stage, salary and bonus are important to support expanding family lifestyles as share options don't pay the mortgage and no bank will lend money against option expectation, he said.
70:30 and 80:20 incentives
There was a lively debate around the concept of 70:30 and 80:20 incentive and reward bonuses. This system, pioneered by Top Pay Research Group, is a method of dividing team bonuses between a guaranteed amount of the bonus pool paid relative to salary and a discretionary part tied to individual performance in achieving team targets.
It maintains the incentive element of a guaranteed bonus, which cannot be altered, if commercial targets are achieved, whilst recognising that the highest paid member of a team may not have contributed the greatest amount towards hitting budgets in a particular year.
The discretionary element of 20% or 30% is used to reflect this fact and to recognise issues such as long-term illness and weekend working amongst members of the bonus group.
Brown's experience at the Top Pay Research Group indicates that in companies where performance is fairly easily measured — take, for example, asset management and dealing organisations where there are universally recognised and relevant statistics — the system works better with an 80:20 split rather than 70:30.
Tracker options
There was general agreement that tracker options, which reward teams in high growth internet divisions of established business who might otherwise be tempted to leave the group, were likely to become more prevalent in major companies.
The smaller companies in the audience welcomed the launch of the new Enterprise Management Incentive (EMI).
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The Top Pay Research Group has built its reputation on providing independent advice for independent directors . The company is director-owned and services 120 quoted, plc and private clients in the UK, Republic of Ireland, Greece and the USA.
For further information contact Peter Brown, chairman, 9 Savoy Street, London WC2R 0BA, tel: 020 7836 5831, or jump to... www.toppay.co.uk