ACCA says long-term asset tie-ups help prevent 'another Enron'
ACCA’s corporate governance and risk management chief Paul Moxey has said
that the UK’s leading finance directors are being held to long-term asset
tie-ups to help guard against a repeat of major accounting scandals.
‘One of the reasons remuneration committees favour the long-term incentive
plans is in recognition of the dangers that share options have posed in the
past,’ said Moxey.
‘The main implication here is the extent to which having a large proportion
of unrealised assets within the company provides incentive towards an Enron or
WorldCom style of management. The fact that there is a relatively small
proportion held as share options helps counter the risk.’
Last week, Accountancy Age reported that FTSE 100 FDs have £487m of
assets invested in their own companies, with 65% of these funds tied up in
long-term incentive plans. A total of 26% of assets are currently held as shares
in FDs’ own names with the remainder in LTIPs (65%) and share options (9%).
The top ten highest earners contributed to the equivalent of £202m, or 42% of
the total figure.
Breakdowns from corporate researcher
BoardEx showed that the
top contributor was Reckitt Benckiser FD Colin Day with a £32.4m asset
investment as of 27 March 2006. At the time, outgoing Barclays FD Naguib Kheraj
was in line for a £15.7m windfall if he had cashed in his holdings.
The study commissioned by Heartwood Wealth Management also highlighted FDs’
reluctance to sell off assets because of the impression it gave to the market.
‘The incentive plans encourage FDs to align their interests with that of
long-term shareholders. It’s good that they’re aware that they may be sending
out the wrong message by share sales,’ Moxey added.