UK – Pension fund manager Hermes Investment Management has drawn a clear line on the debate over executive share option remuneration, by announcing that it will not support resolutions put to shareholders for executive share options re-pricing in any of its 3000 worldwide public company investments.

Hermes says it believes that share options, the long-term incentive used to recruit and motivate directors and senior personnel, are fundamentally flawed.

It adds its belief that share option schemes are a potential demotivation.

Says Michelle Edkins, Corporate Governance director at Hermes : ‘In a bull market, participants can benefit from market sentiment towards their sector, but equally, when sentiment changes, even good executives will hold options that are out of the money.”
Hermes prefers incentive schemes that grant shares, not options, and which use performance targets, such as peers, to measure company performance. This way, there is a closer link between the directors and shareholders.”