European companies today are much less likely to use share options to award their senior executives than three years ago, reveals a new survey.

13 July 2006

AMSTERDAM—European companies today are much less likely to use share options to award their senior executives than three years ago, reveals a new survey. Popular alternative long-term incentive plans include performance shares, long-term cash plans and restricted stock units.

The survey by Mercer Human Resource Consulting shows that the number of European companies using share options as an incentive for their CEO's and other executive directors has dropped by over a third in the last three years. 

In the UK and Ireland, performance shares now constitute 70 percent of an executive’s long-term incentive plan and in continental Europe, more companies now use long-term cash plans and restricted stock units reports Mercer.

"The requirement since January 2005 to expense options in corporate accounts has reinforced a perception that share options are less cost-effective than other long term incentives in providing executives with a real interest in the business," says Richard Lamptey of Mercer.

The report shows that companies need to think carefully about the relative merits of different long term vehicles, to support their business strategies and projections.

"In Continental Europe, the legal framework governing share-based incentives is generally not as permissive as in the UK and Ireland, so performance shares are used less frequently as an alternative to options."

Despite increasing pressure from shareholders, only 43 percent of respondents plan to enhance compensation disclosure in their 2006 annual report.  However, among companies with fewer than 1,000 employees, the figure rises to two-thirds 67 percent reports Mercer.

The most common intention of the companies giving disclosure, the survey shows, is to give more details about short and long-term incentive plans, followed by increased disclosure of individual pay details for top executives.

[Copyright Expatica 2006]