Carillion – lessons learned for share schemes?
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.