UK - Nearly a third of all FTSE 100 companies require their top executives to have a substantial shareholding in their company, according to research by consultancy William M. Mercer.
According to the study this requirement follows the US trend and is designed to improve corporate performance by aligning directors’ interests with those of company shareholders.
About 33% of the top 100 companies require executive directors to hold a minimum number of shares in their businesses. At least six of them have implemented this as a new policy in 2001 while eight introduced it in 2000.
Typically, chief executives are required to hold a greater number of shares than other directors. The range for them is between one and five times salary. Common practice also allows directors to build up their shareholding over three to five years.
Increasingly, top directors are required to have a significant personal stake in their company, since this can act as a motivator for delivering shareholder value, said Belinda Hudson, European principal at Mercer.
Indeed, the recent fall in share prices has hit many directors quite hard. Not only has the value of their personal shareholding fallen, but some if not all their options are now worthless, with limited prospect of a recovery in the near future.
Hudson said these policies have met with opposition from many executives on the grounds that their ability to hold a diversified investment portfolio is restricted and they are exposed to greater risk.
In reality, the blow is often softened by more generous awards under long-term incentive plans, she added.
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