Criteria for incentive schemes
In many cases, the Fund feels that the ability to offer incentive schemes is an effective way for companies to recruit and retain valuable employees. However, it is essential that these schemes meet the required criteria (see below).
Thanks to the efforts of Första AP-fonden and other institutional shareholders, together with the boards and compensation committees of the companies, the structure of incentive schemes has improved significantly in recent years. However, there is still no adequate evaluation of these schemes from a shareholder perspective.
Criteria for incentive schemes
The incentive scheme shall be part of a communicated long-term compensation strategy.
- The achievement of a pre-determined, clear and measurable target shall be required in order to qualify for allocation in share-related incentive schemes. As a rule, this achievement should be linked to the company’s overall profitability. The performance targets shall also be communicated to the shareholders.
- The costs of the scheme to both the company and the shareholders (such as dilution) shall be reasonable and clearly reported.
- Long-term share-related incentive schemes expose the company to a risk for movements in the price of its own shares. Information about how the company intends to manage this risk, and the related costs, shall be put before the general meeting prior to decision.
- Share option schemes should preferably be relative, i.e. price development for the company’s shares should be related to the general market trend, the trend for the industry or the share price trend for selected competitors.
- An evaluation of costs and effects of previously implemented schemes should be used as a basis for decision on future schemes.