Executive Pay

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Executive Pay

Executive Pay

LAPFF to conclude that a lower cost and more effective approach to rewarding executives and encouraging them to perform lies in phasing out LTIPs in favour of company-wide, long-term profit pools
LAPFF to conclude that a lower cost and more effective approach to rewarding executives and encouraging them to perform lies in phasing out LTIPs in favour of company-wide, long-term profit pools

The Forum has been concerned that the significant growth in performance-based pay at UK companies has not been accompanied by material improvements in financial performance.

 

LAPFF is also frequently told by companies that senior executives ignore LTIPs as a motivating factor in their performance (not least because of their complexity).

 

Since senior executives can have little influence over relative shareholder returns, and since EPS does not incorporate a company’s cost of capital, LAPFF believes recipients are much more likely to be motivated by reward metrics that are aligned with business strategy and (other) key performance indicators of the firm; to the overall benefit of the company and shareholders.

 

LAPFF also believes that the degree to which other employees believe the pay of senior executives is set at a level that is fair in relation to their own pay can impact the extent to which other employees give their discretionary effort towards achieving the company’s objectives. In LAPFF’s view, remuneration committees should therefore include considerations of such perceived fairness in discussions of senior executive pay.

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