Op-Ed by Comp Committee Chair Decries Investor Reluctance to LTI Simplification
May 5, 2018
A recent op-ed by Claire Chapman, rumuneration committee chair at Weir Group, Kingfisher and Heidrick & Struggles, details the struggles the Weir group has endured to adopt a long-term incentive plan that addresses the great cyclicality in the oil industry and the resulting fluctuation in compensation. Under the plan adopted, "executives are given shares that pay out over seven years, without the three-year performance conditions found in most long-term plans," award levels are half of what they were, and the board has discretion to reduce payouts to avoid paying for failure. The change came after Weir group failed its say on pay vote, and it unveiled research showing that lengthening time horizons for pay outweighed reducing amounts, and that performance targets can be gamed, which led them to focus on restricted stock rather than performance shares. Chapman reinforces the notion that compensation programs need to be customized to the company, but there are limitations, as Unilever discovered this week when less than 70% of shareholders supported its substantially revised compensation plan. These include the "fixed views" of some institutional investors on pay and those "with highly diversified portfolios" that find it difficult to engage with companies or refuse to do so. Chapman concludes that attitudes are changing and that "our success will be narrow if we fail to inspire other companies to pursue reforms of their own."