Carillion – lessons learned for share schemes?

Posted by RM2 at 17:55 on 17 Jan 2018

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One of the issues raised in connection with the Carillion story in the last couple of days is the bonuses paid to directors which, by all accounts, can’t be clawed back despite the disaster that’s befallen the company.

It seems unlikely that clawing back directors’ bonuses would have made much of a difference to the black hole in the company’s finances. Nonetheless, for the now-redundant employees of the company – not to mention the many sub-contractors whose livelihoods are threatened – it must leave a bad taste in the mouth.

It’s not always possible to look into the future when designing Employee Share Plans, whether for directors or employees. But it’s certainly possible to take into account that things might not always go as well as you’d hoped. Do make sure that there are realistic performance targets attached to your Employee Share Scheme – and that participants don’t get to participate in any value till those targets have been fully realised. Be very clear that if individuals are sacked, they lose their rights entirely. That might include all their options lapsing, or it might mean they have to sell their shares back (potentially at a different price for a “Bad Leaver”).

And remember – if your employees or directors are rewarded through shares rather than cash bonuses, it’s very much in their interests to focus on the company’s performance in the long term. A return of 1p for every £1.00 shares is not an outcome that any shareholder looks to achieve.