In issue no. 26 of Focus, Portfolio Manager Henning Skov Jensen, ATP (the Danish Labour Market Supplementary Pension Scheme), outlines the Danish incentive schemes and presents ATP's attitude towards the overall structure of the schemes.
Within the last five years, most major Danish companies have introduced share option schemes to the management board and the managerial staff, and now the boards of directors are also being included in the schemes. Therefore, it is time to discuss the design of the share option schemes.
ATP sees share options as an instrument to influence the management's conduct in accordance with the long-term interests of the shareholders. The starting point should be the value of the options, which should be in reasonable relation to the total remuneration of the management. The options should be allotted currently so that the management makes long-range plans and not just looks ahead to the next allotment. Henning Skov Jensen supports his argumentation by referring to a number of surveys of share option schemes.
The many share option schemes have increased the need for transparency and, so far, reporting on the value of the options and any changes has been inadequate. Therefore, the author welcomes the Copenhagen Stock Exchange's relatively new set of rules on disclosure requirements for share option schemes.
ATP and the members of the International Corporate Governance Network (ICGN), which is supported by some of the largest institutional investors in the world, such as CalPARS, HERMES, Fidelity and also ATP, have recently taken the initiative to use their voting power to ensure full openness about the management's remuneration full charging of options to the profit and loss account that share options are currently allotted in small portions instead of one large sum that companies publish estimates for the management's expected remuneration (high, mid, low) on the basis of the total remuneration package.
The ICGN initiative is taken as a result of the latest international corporate scandals. To avoid inappropriate conduct on the part of the management, the shareholders must assume responsibility, and, naturally, ATP will shoulder its share of the responsibility, the author concludes the article.
