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October 30, 2018

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Uncapped Share-based Awards can be Dangerous

January 24, 2018

There has been general comment in the media recently about excessive share award schemes to senior management. Such schemes can attract widespread criticism from various parties for the size of the payouts.

 

At Fraud Risk Analysis, we look at share award schemes in general in a different way. We believe that unusually large awards coupled with unlimited upside could, in our opinion, have potentially damaging consequences. The scale of share based awards is something that we look at particularly closely from a fraud risk perspective.

 

From such a perspective, such share based awards give cause for potential alarm. The incentive for senior management to continue to deliver revenue, profit and cash returns and, hence, drive further share price appreciation, remains disproportionately strong. As a rule, whenever we see substantial share based remuneration schemes, we pay particularly close attention to accounting policies and look for any signs of aggressive accounting. We would then question the governance perspective of such schemes and raise the question about the investment attractions of the equity, if investors faced a significant forced dilution of their interests. Excessive share based awards can also have a demoralising effect on a company’s workforce.

 

For further information please contact David Eaton at FRA 07985 281168.

 

This blog is abbreviated from a longer analysis of share based awards which is available on request from dsaeaton@fraudriskanalysis.com

 

 

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