Watch out - the shareholders are revolting!
Shareholders in public companies are increasingly reluctant to support big payouts to executives without seeing some proper value in return. The news is full of revolting shareholders making their feelings known, with WPP, SportsDirect and HSBC just three big names who have recently been subject to criticism of perceived over the top remuneration packages for big hitters.
Of course, shareholder revolts are not limited to large listed companies. In fact, smaller companies – whether privately owned or AIM listed – are probably more likely to see remuneration policies overturned by external investors who will often have significant voting clout and a very close and personal interest in the company’s finances. Add in the complexity of family shareholders and you can often end up with a very heady mix of views and opinions.
In this type of situation it is absolutely essential to get shareholders’ buying in to your share plan. Failing to do so can result in costly delays to implementation and, in some extreme cases, the rejection of a share plan in its entirety.
This position can usually be avoided with careful forethought and good communication. Consider the following:
- What do the shareholders get? Dilution is always a concern, but employees will only benefit if the company’s value increases. The idea is that shareholders will have a smaller piece of a bigger pie.
- Why do you need the share plan at all? Perhaps you need to offer equity to attract a particular high flyer. Maybe your key employees will walk away without that extra motivation.
- Why shares rather than cash? Long term motivation is more likely to be linked with share awards than a cash bonus.
- Tax advantages. The cost of the share plan will often be offset by tax savings – Income Tax, National Insurance Contributions and Corporation Tax deductions.
Talk to your shareholders, canvass their views and answer their questions. It’s well worth committing some time, preparing a strong case for the share plan and providing full information – including financial modelling – at an early stage. Otherwise, you run the risk of going to the next stage and spending time and money designing a plan, only to have it rejected at the AGM.
For more information on any of the content covered in this blog, speak to a member of the team directly by calling 020 8949 5522.