Share options remain in vogue for AIM

AIM companies coming to market are choosing to reward senior executives with Share Option Plans at IPO in preference of Long-Term Incentive Plans, according to a survey by New Bridge Street Consultants, an executive remuneration specialist.

This is contrary to trends seen among FTSE 100 and FTSE 250 listed companies where, NBSC says, LTIPs have increasingly been implemented over Option Plans.

David Tankel, senior partner at NBSC, comments: ‘In recent years, there has been increasing emphasis on transparency with regard to remuneration and investors have heavily scrutinised the performance related elements of pay.’

The survey, which analysed the remuneration arrangements of 403 companies coming to the market (the Full List or AIM) between 1 August 2004 and 30 April 2006, found that of the 20 larger AIM companies granting options at IPO, 40 per cent disclosed that all or some options would be subject to performance conditions.

Looking at the smallest AIM companies granting options at IPO, NBSC identified that 25 per cent disclosed some or all of the options would be subject to performance conditions. The most popular performance condition was earnings per share (EPS) with shareholder return being the measure of choice by only nine per cent of companies.

A significant number of companies, says NBSC, chose to pay a special bonus at IPO. Thirty-three per cent of those companies with a full listing paid executive directors a bonus at IPO, compared to 21 per cent in a similar survey conducted in 2004.

Bar one company, NBSC found these bonuses were paid wholly in cash. Of the AIM companies with market capitalisation over £50 million, five paid cash bonuses at IPO. Only eight per cent of smaller AIM listing companies paid a bonus and all were in cash.

Tankel observes: ‘In terms of long-term incentives, listed companies – particularly large ones – have increasingly replaced their Options Plans with a Long-Term Incentive Plan primarily in response to new accounting regimes and institutional investor views.’

Given the move away from share options by the larger investment groups, NBSC argues it is imperative for businesses approaching an IPO to show awareness and address key issues, such as:

  • The appropriate level of salary for senior executives, taking account of the levels paid in similar businesses in terms of size and sector;
  • The optimum balance between fixed and variable pay and between short and long-term incentives;
  • The design of an appropriate annual bonus plan, including the level of potential bonuses and relevant performance metrics; and
  • Appropriate long-term incentive provision, taking account of the company’s objectives, market practice, investor views, share usage, accounting cost and tax.

Tankell warns: ‘We recommend that companies approaching IPO should adjust their salary levels ahead of listing to get them in order for life as a listed company.’

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.