U.K. Investors Should Shun Long-Term Bonus Plans, PIRC Says

Long-term incentive plans for managers don’t punish executives for poor planning and should be opposed by shareholders in British companies, according to an adviser on more than $2 trillion in pensions.

“Our conclusion regarding LTIPs is simple: they are not long term and they do not incentivize,” Alan MacDougall, managing director of Pensions & Investment Research Consultants Ltd., a U.K. corporate-governance adviser, said in an e-mailed statement today. “They are also ineffective due to amendments and manipulation by remuneration committees.”

Investors should also consider how companies use compensation consultants, PIRC said the statement. Consultants are largely responsible for pay plans companies use to compensate their executives, it said, adding that auditors of a company’s accounts shouldn’t also help set pay.

Investors should vote against accepting the report and accounts of companies that adopt new long-term incentive plans this year, said PIRC, which advises institutional investors.

Investors have voted against executive compensation at record rates over the past two years, with half of FTSE 350 companies receiving more than 20 percent of votes against their pay plans in 2011 and 2012, said Manifest Information Services Ltd., a proxy voting firm. Fund managers including Fidelity Worldwide Investment have said executive pay is too complicated and share awards should be spread over longer periods.

Companies offer executives long-term incentive plans that can dwarf their salary. In 2011, Barclays Plc’s chief executive officer at the time, Robert Diamond, was awarded as much as 2.25 million pounds ($3.49 million) in long-term incentives compared with a 1.35 million-pound salary, according to the London-based bank’s annual report. Twenty-seven percent of investors voted against the pay plan at the bank’s annual meeting in 2012.

To contact the reporters on this story: Howard Mustoe in London at hmustoe@bloomberg.net; Kevin Crowley in London at kcrowley1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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