Why Monitor Performance?

  • If Long-Term Incentive Plans are to provide a real incentive then members have to be given regular feedback on the company's performance against its chosen measure.
  • Feedback links the expectation of future vesting to current performance.
  •  Without feedback awards take on a degree of randomness in the eyes of members. The plan risks being seen as a lottery rather than an incentive mechanism.
  • This is a particular risk with TSR, which although in many ways a good performance measure - it is objective, forward looking and independent of accounting policies and treatments - is opaque.
  • Without reliable information plan members have difficulty in asessing whether vesting or excercise of their awards is likely.
  • Regular reporting, on a monthly or quarterly basis, keeps executives informed, interested and motivated.
  • Monitoring allows proper accounting provision to be made for expected future vesting.
  • In situations where shares are held in trust to cover the potential liability of future vesting regular updates on the likelihood of vesting enable efficient management of the number of shares held.
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