EUROPE - European Corporate Governance Service (ECGS), an alliance of the leading corporate governance research and advisory groups in Europe, has welcomed the decision of Nordea's board to revoke the proposal for a stock option programme that was to have been submitted to its AGM on April 24.
The decision was in the face of opposition to the proposal from major shareholders.
ECGS in its advice to clients recommended opposition to the scheme for the following reasons:
* The scheme exceeded local dilution guidelines;
* There were no details of performance targets for management;
* No details of managers’ rights under a previous programme that had to be waived to participate in this scheme, this risked effectively repricing earlier options; and
* ECGS did not consider it appropriate for a single resolution to be put to shareholders to cover incentives for key managers (minimum of 40,000 warrants rising to 520,000 warrants for the CEO) and for other employees maximum 400 warrants as these are separate issues in our view.
ECGS managing director, Alan MacDougall said: The trend across Europe is becoming clearer. Companies can no longer rely on passive institutions to support option schemes without a full understanding of the details. We have seen it in the UK as the companies who are highly paid for managing the savings of millions of individuals have belatedly woken up to the very real costs of options.
A rebalancing of power between shareholders and managers on this issue was long overdue. If it means that continental Europe can avoid the excesses seen in the US and the UK, then this is to be welcomed. But European companies need to be more transparent and provide timely, plain language information to allow shareholders to understand the proposals and the outcomes.
CaringCompany managing director, Magnus Furugård said: Complex option programs combined with poor information causes serious difficulties for shareholders to assess the potential outcome in terms of actual allocation to management and the real cost for the company. There is also an inability among companies to explain and communicate the link to a reasonable performance target.
As option schemes are becoming increasingly common among Swedish companies – about 25% of the companies are introducing new schemes this year alone – the urgency of developing a clear market practice in this area is even greater.
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