The London Stock Exchange is to review its existing options scheme for senior executives to bring it into line with accepted corporate governance practice now that it is a fully listed UK public company.
The LSE had faced criticism over its scheme, which was introduced last year because it does not meet the basic standards outlined by the Association of British Insurers, a trade body for the UK fund management industry. These shortcomings were first reported in Financial News this month, when Manifest, a UK corporate governance consultancy, attacked the scheme for not having any performance criteria attached to it.
Nigel Stapleton, a non-executive director of the LSE and head of its remuneration committee, said at last week's annual shareholder meeting: 'The existing schemes do include the possibility of incorporating performance criteria. That is something we will look at.' He was responding to the concerns of one shareholder, who wanted to see higher performance hurdles before directors could cash in their options.
The LSE is already committed to ensuring that any new options scheme will incorporate best practice corporate governance rules.
The original options scheme was launched when the LSE demutualised last year. Under the scheme, the four most senior directors will be able to cash in nearly 500,000 (€820,000) between them at the end of this year, regardless of the financial performance of the company, assuming the share price stays at around 4 - the valuation put on the LSE by its advisers.
Manifest criticised the scheme for its lack of performance criteria and the fact that executives can cash in 20% of their options every year over five years, instead of the usual three-year holding period.
There is also no official limit to the value of grants, whereas usually awards are restricted to three-times salary. Deferred bonuses are also paid over two years, instead of the usual three years.
The failure to meet such basic standards was alarming, given that the LSE will become a member of the FTSE 250 index with a market capitalisation of 1.2bn.
The LSE defended its original options scheme by saying that it was appropriate to its corporate structure as a non-listed company at the time. It also pointed out that a substantial number of options were issued at above market price.