Incentive schemes in “Best Practices of Companies Listed on the WSE”

Paweł Kawarski        29 December 2015        Comment (0)

1 January 2016 will be the first day on which the new code of corporate governance of the Warsaw Stock Exchange entitled “Best Practice of GPW Listed Companies 2016” are in force.

The document as being the basic regulation of corporate governance of companies listed in Warsaw deserves a separate analysis (a brief introduction has been published on the WSE’s website “WSE Launches ‘Best Practice of GPW Listed Companies 2016’”), but not surprisingly I would focus on employee shareholding issues.

In fact, any mention in “Best Practice” of anything what could be linked, if only remotely, to some kind of employee shareholding is included in Section VI “Remuneration”. According to this Section, a listed company is expected to have “a remuneration policy applicable at least to members of the company’s governing bodies and key managers (…).”

Two of the “detailed principles” provide that:

VI.Z.1.            Incentive schemes should be constructed in a way necessary among others to tie the level of remuneration of members of the company’s management board and key managers to the actual long-term financial standing of the company and long-term shareholder value creation as well as the company’s stability.

VI.Z.2.            To tie the remuneration of members of the management board and key managers to the company’s long-term business and financial goals, the period between the allocation of options or other instruments linked to the company’s shares under the incentive scheme and their exercisability should be no less than two years.

These principles allow to draw the following conclusions under the “Best Practice” from the perspective of the subject-matter of this blog:

– to be honest, the idea of employee shareholding or employee ownership of shares of the company has not been even mentioned, as “incentive schemes” do not necessarily involve participation in the share capital,

– even if employee shareholding were present, it would not involve common employees, contrary to worldwide tendencies, but exactly in line with Polish practice, observed by the most recent 2014 survey of the European Federation of Employee Share Ownership,

– it seems that “long-term financial standing of the company and long-term shareholder value creation as well as the company’s stability” has nothing to do with incentives common employees receive, as if they did not contribute to these factors at all.

It is striking indeed that participants of Polish capital market do not see advantages of connecting companies’ competitiveness with motivation their ordinary employees’ enjoy. I am afraid “Best Practices” cannot be awarded the highest rank in the area of employee shareownership.

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