Bonus for underperformance

By THIS IS MONEY
Updated:

 

Targets that trigger bonus payments for company directors are often set at a level that is too easy to hit, according to a report by top accountants PricewaterhouseCoopers.

The report reveals that almost three-quarters of company directors could be raking in lucrative bonus payments despite their firms underperforming the market.

The report also attacks companies for making it too hard for shareholders to understand the bonus targets being set for directors.

According to PwC's survey, 70% of companies had set performance targets at just 3% real growth in earnings per share. In some cases the targets were even lower.

Graham Ward-Thompson, a partner at PricewaterhouseCoopers and author of the report, said the figure was easily hit by almost 75% of companies.

'A worthwhile target is something that is difficult to achieve,' he said. 'If the link between directors' remuneration and performance is to be effective, a greater level of clarity is needed to ensure that shareholders understand the criteria on which directors are being judged.'

He said the report showed that in 49% of schemes a shareholder would not be able to identify what criteria was being used by reading the company's report and accounts.

And in 32% cases, the performance requirement for pay-out was either not disclosed or only described in vague terms.

Mr Ward-Thompson said: 'This lack of clarity, combined in many instances with low targets, is combining to create mediocre performance among the companies surveyed.'

The PwC report was based on information in the annual report and accounts for years ended between July 1998 and July 1999 of 122 FTSE-500 companies.

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