Executives Should Lose Long-Term Incentive Pay, U.K. Panel Says

  • Business Committee says plans can distort leader behavior
  • Urges use of stock options, vesting over more than five years

Executives in the U.K. should no longer receive compensation based on long-term incentive plans because they conceal true levels of pay and can create perverse incentives, a panel of lawmakers said.

The plans usually involve shares instead of money and are based on different performance metrics. They can be so sophisticated that they require teams of advisers, according to a report by the cross-party House of Commons Business Committee.

“We heard that LTIPs have a tendency to distort executive behavior, with CEOs tailoring decisions to affect the share price around the time their shares are due to vest,” the report said. “Given the disquiet within the general public about the issue of executive pay, and the lack of confidence in the effectiveness of attempts at restraint, we believe that more radical action is now needed to start restoring confidence and improving transparency.”

No new plans be introduced starting in 2018, the panel said. Instead, executives should receive deferred stock options, vesting over periods longer than five years, it said.

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