LTIPs have been a controversial subject in the media in recent years, particularly as we have seen executives receiving substantial LTIP payments during difficult economic times. Now that the economy is on the road to recovery, we believe it is time for businesses to start thinking about how they can make their LTIPs better-rounded with a little less focus on financial measures as the definition of success. Our message is that while financial measures will continue to be the primary measure, companies should also acknowledge other non-financial factors which can contribute significantly to business success.
Many businesses in the UK have already been placing less emphasis on financial targets and more on the non-financial drivers of business. A 2012 report by KMPG showed that among a wide range of financial targets, 12% of LTIPs had a strategic or other measure. This can include employee engagement, customer satisfaction or meeting regulatory body targets. This report’s findings are indicative of companies adopting a more tailored design for their LTIPs.
The Incomes Data Services (IDS) published a report back in 2007 which showed that among FTSE 350 companies, LTIPs relied on a single target – usually TSR (73.2% in Mid 250 companies). The most recent Directors’ Pay Report published by IDS in 2013, shows only 46.6% are now adopting that same target.
The research shows that the design of LTIPs is most definitely changing. We think that by focusing on indicators such as employee retention, creating successful client relationships and supporting local communities can go a long way to making your business successful, a better place to work and ready for the challenges that a potentially uncertain economic future may bring.
