The Norwegian sovereign wealth fund's policy to attack long term investment plans (LTIP) is the latest in a stream of investors and institutional lobby groups attacking director's remuneration.
However, attacking LTIPs is relatively rare. Because LTIPs are usually offered as shares that vest over a period of time, in theory, they should be aligned with investors return.
However, what has happened in reality is that targets in LTIPs have become either too obtuse or aligned to general market conditions and peer performance, rather than investors return.
What really needs to happen is for REMCOs to discuss LTIP targets with investors in advance of setting a target and ensure large institutional shareholders agree with the REMCOs deliberations.
Ensuring senior managers are incentivised over the longer term is still more important than short term bonuses so LTIPs do have an important role to play, so long as they are structured to reward success and penalise failure.
A general review of remuneration structures on a global scale is long overdue.
Norway's sovereign wealth fund calls for the end of long-term incentive plans