The dangers of linking executive pay to share price alone

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) May 11, 2009 -- Colin Melbourne, Director at Brisbane-based change management consultants Astor Levin, warns companies of the dangers of linking executive remuneration to the company’s share price and suggests five general rules for good practice in setting executive pay.

In his recent article “Executive remuneration based on share prices”, he outlines how share price-based remuneration packages can encourage senior executives to pursue strategies that are not always in the best long term interests of the company.

He explains:

“It can be much easier and more exciting for executives, in the short term, to create a wonderful blue sky growth story, rather than continue to slog away, delivering fantastic financial results time and again. Beware! There are numerous examples of expert ‘turnaround’ CEOs that join a company, cut staff and product lines, come up with a wonderful (and completely unrealistic) future story, make a killing with stock options and move on quickly - in fact just before the company collapses, as it no longer has the capacity to deliver.”

He suggests five general rules for good practice in setting performance based pay for senior execs:

1 Don’t use the share price as the only measure
2 Consider using a relative value Total Shareholder Return (TSR) against a peer set of companies
3 Broaden the measures of performance appraisal
4 Restrict how often performance bonus shareholdings can be sold
5 Leave some room for discretion at Board level

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About Astor Levin

Astor Levin Pty Ltd is a Brisbane based human resource and management consultancy firm that provides services to a range of private and public sector clients throughout Australia. The team consists of highly qualified consultants with a mixture of human resource management, business analysis and organisational psychology backgrounds with global experience. Their client base ranges from small business to ASX200 companies.

For a full copy of the Astor Levin article, or to speak to author Colin Melbourne please contact David Bateson on +61 (0)7 3901 1055 / +61 (0)402 332287.

More information can be found online at http://www.astorlevin.com

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