Designing long-term incentive plans for senior executives in the shipping industry is not always straightforward. Of the 40,000 shipping employees whose data makes up the annual Maritime HR Association salary survey conducted by Spinnaker, 3% receive some form of LTIP.
For the limited number of publicly listed organisations, there is a full range of share schemes and share option schemes available. The most common schemes involve reward packages comprising a mixture of salary, variable pay (bonuses) and a three-year share option scheme vesting one-third each year after their award. One listed shipowner we know well has generally worked on the basis of one-third salary, one-third cash bonus and one-third shares or share options.
Over time, such schemes can grow in value to form a valuable set of golden handcuffs, making people think hard and sometimes twice before they take the decision to leave. Sometimes the new employer will buy out these schemes in full (or paid out over a vesting period of their own), and sometimes they work, leaving the executive with a decision to make – leave and sacrifice them, or stay and keep them.
The situation is less easy in privately held companies, especially those which are family-owned, and where there is no willingness to share ownership with others.
For some companies, the solution is straightforward, and that is to be among the best bonus payers in the marketplace. A few of our clients are such outliers when it comes to bonus payments to their executives that they simply do not have to trouble themselves with long-term incentive plans. For them, the long-term element is the consistency of payout.
Not all companies are in such a fortunate position and for them, this sounds like writing a blank cheque. The phantom or shadow share scheme can be a useful alternative for these employers. Such schemes mirror real share schemes, without actually issuing shares and divesting ownership.
For a creative mind, there are lots of options. Some of these include a notional issue of shares on a given date with the executive benefiting from the increase in value of those shares over time. These phantom shares may or may not attract a virtual dividend in the form of a cash bonus or the issue of further shares. Without going into great detail here, the choice is between awarding phantom shares with full capital value, increase in value only, both and the addition of virtual dividends.
Spinnaker’s Chairman Phil Parry has seen and helped to design a wide variety and tells us that no one of them was the same: “Each company and each person brings their particular needs and personalities to the table – but the principles don’t change and with willing participants, we’ve always managed to thrash something out!”
Phil Parry and Teresa Peacock head up Spinnaker’s Executive Search division. Find out more about the service.
