Whether to use determinate or indeterminate rights in long term variable remuneration (LTVR) plans for senior executives remains a challenge for many boards. Indeterminate rights are far more flexible and have wider application, yet market practice is divided.
Incentives or Variable Remuneration (VR) market practices are evolving rapidly due to shifting stakeholder expectations and legislative changes. Using the ASX300 market data in GRG's 2024 Variable Remuneration Guide, we analyse the latest trends and answer common VR questions.
LTIs have a poor reputation as overly complex, legalistic, opaque and challenging, with unintuitive performance metrics. But LTI/LTVR can, and should be, the most powerful, effective element of remuneration. So what are the fundamentals of LTI plans and their critical success and failure factors?
Substantial regulatory changes and innovative solutions have recently made compelling LTVR/LTI structures possible for unlisted companies. We analyse the four main approaches we observe in successful unlisted market examples (and the main alternative).
SIPs may at first glance seem to offer less complexity and more certainty than commonly accepted STI and LTI plans, but they are actually more complex and lead to lower payments for executives who achieve target performance.
When offered to executives, retention and sign-on awards can be viewed as controversial and even inappropriate. With the latest market data we explore the resultant stakeholder tensions and variations which may address their diverse priorities.
Each year GRG analyses the senior executive incentives practices of the ASX300 and publishes the results in the Variable Remuneration Guide to help clients determine whether a deeper strategic review may be needed. We highlight some of the key findings from the latest edition.
Flaws in many of the various calculations of equity instruments for LTI grants result in inappropriate numbers being granted. To address the issue, GRG has developed a universal formula for this calculation, applicable to LTIs and other purposes.
STVR typically rewards performance over a single year of the company's annual business plan. For many years it was paid entirely in cash, which promoted short-termism at the expense of the company's longer-term benefit. Here we look at future best practice, including how deferring STVR can support long term alignment, equity holding policy requirements, and “skin in the game”.
Since 2015 unlisted start-up companies have been able to access a specific tax concession for employee share schemes. Employees and directors of ASX listed Micro Resources Companies can also qualify for tax deferral on rights and options in their remuneration packages. The same provision can also apply to other small ASX listed companies in industry sectors such as technology and medical, during development stages.