PERFORMANCE HURDLES
In fixing directors’ remuneration based on performance, there are some constraints that should be taken into account. The scheme to reward directors based on performance should be properly structured so that the benefits conferred on them reflect superior performance.
In a rising share market, when directors’ remuneration is linked to share prices, they would gain increasingly higher benefits, regardless of the company’s performance. In such cases, hurdles devised to reward better performance may involve comparisons with similar firms in the industry or return on equity measures.
Another means that is advocated in this context of designing performance hurdles is the strategy to be adopted in the exercise price of the shares, ...
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