The Association of British Insurers wrote to all remuneration committee chairmen in January 2011 to voice concerns in relation to uncapped incentive plans. Under such plans, participants receive shares at an amount determined by reference to an increase in the company's market capitalisation over a pre-determined target level. The ABI says that concerns arise in particular where there is no overall cap on the number or value of shares which may be awarded under the plan, where targets under the plan are not sufficiently robust or appropriate and where outcomes are likely to result in increasing risk of dilution and excessive distribution of value.
The ABI notes that its members will not be supportive of theses forms of uncapped incentive plans being adopted unless adequate explanation is given to demonstrate the exceptional circumstances that justify the plan being introduced and the structure of the plan includes a cap on the number of shares to be potentially issued or purchased, or other acceptable shareholder protection. The letter says that a company that introduces an uncapped incentive plan which does not reflect this guidance can expect to be "red topped" by the ABI.
The ABI letter can be found in the IVIS website, along with its existing Executive Remuneration Guidelines (last updated in December 2009) which should be consulted when structuring remuneration plans.