Comment: High–fidelity sound on remuneration front

IN TERMS of delayed executive bonuses, five years is rapidly becoming the new three years. At the height of the financial crash, and indeed for quite a while afterwards, two or three years was normally the required period of time for executives to hold on to stock options as part of long-term incentive plans (LTIPs).

But investor sentiment has hardened against such relatively short periods for directors and rainmakers at companies to cash in on those bonuses.

Fidelity chief investment officer Dominic Rossi says now nearly half of FTSE 100 businesses insist executives hold stock options for a minimum of three to five years. The figure was a disappointing 17 per cent at the start of 2013.

Fidelity, one of the biggest institutional investors in the UK and mainland Europe, is one of those which has put its money where its mouth is.

The fund manager said last year that it would oppose any LTIP that allowed executives to cash in stock options within three years, and has now gone a significant step farther by saying that from next year it will vote against any plans lasting less than five years.

Five-year compliant has become a bit of a buzz phrase in the fund management industry, with major companies such as Anglo American, AstraZeneca and BT signing up to it.

The development is to be welcomed. Five years better aligns the long-term interests of executives and shareholders. While some disastrous corporate takeovers or flaky organic strategy become apparent pretty quickly, other times it is several years before the jig is up.