City sources say that at least two other major contractors are thinking of setting up versions of the Founder’s Equity Plan, which could see the Carillion board net £9.5m.
Share incentive schemes for senior management are always a subject of intense debate, but Carillion’s plan is unprecedented in construction because those that have signed up have invested large sums upfront.
Typically in share schemes, individuals are given an “option” to buy shares in several years’ time at, or below, the market price on the day they signed up.
However, subscribers to Carillion’s plan have already put in up to a year’s salary, exposing themselves to the chance that the shares could fall. This would mean they would have to either leave their money in the scheme in the hope that the shares rise, or sell at a loss.
The plan has been a hit with investors because it shows the company’s commitment and a willingness by the management to take risks to succeed. “In many ways, it has the characteristics of a management buyout,” says JP Morgan analyst Mike Betts.
Investors are also impressed by the tough targets that have been set. One analyst said: “A good share scheme is where the management is set a demanding target.”
We wanted to drive this down to as many people as possible
John Sharples, EXecutive Director, Carillion
No one can deny that doubling the share price of a sleepy construction stock in the space of three years is a challenge. Only a few stars, such as Jarvis and Amec, have managed it in recent times.
In addition, the scheme is not limited to board members. In all, 121 managers have subscribed. “We didn’t want this to be for just the top half-dozen directors. We wanted to drive it down to as many people as possible,” said Carillion executive director John Sharples.
However, board members’ windfalls are set be much bigger that other staff’s because their salaries are higher. Sharples said: “When we told our shareholders, there were one or two raised eyebrows.”
One analyst is convinced that Sir Neville is priming Carillion for sale. He said the rise in share price that a bid would trigger would allow him to collect a huge bonus.
Not surprisingly, US fund managers are more comfortable with the scheme than their UK colleagues – they are used to incentive schemes that make Sir Neville’s look niggardly.
But for now, the UK has a problem with the greed factor. One analyst said: “While I am all in favour of incentivising managers, I think that in some instances people are just taking the mickey.”
