Executive compensation

Many companies adopt a short-term bonus scheme for their executives, together with a longer term scheme which may be based on share options. The performance conditions attached to these schemes generally relate to accounting measures (for annual bonus schemes and share options) or to total shareholder return (TSR) (for other long-term incentive plans, ltips). However, accounting measures can bear little relation to the creation of shareholder value; and shareholder return is not necessarily related to management performance. Accordingly, performance measures need to be balanced carefully, to minimize distortion.