Share scare as consultants issue warning on new accounting rules

The
new accounting standard for share-based payments – Financial Reporting Standard
20 (FRS20) – will have a dramatic effect on how companies manage recruitment,
retention, reward structures and performance measurement, according to a new
report by executive compensation specialists Halliwell Consulting.

The
report – which examines the impact of the new accounting standard on FTSE 100
and FTSE 250 companies – reveals that in addition to the hit on profits there
will be a massive impact on employee share arrangements and therefore the total
package available for employees at all levels of the company.

Halliwell
Consulting reports that there are three main ways in which the charge will take
effect:


how options are used as a retention and recruitment tool


how options can be used to incentivise or reward employees


how options are used as a benefit under Save As You Earn plans.

John
Dymond, principal consultant at Halliwell Consulting, said: “Options have been
the vehicle of choice, but the introduction of FRS20 will make remuneration
committees reconsider how they use share incentives.

“Now
that they carry a charge it will be necessary to consider what the aim of using
them is and to whom they should be granted,” he added. 

However,
the charge will have a positive impact on recruiting and retaining staff from
the US. The standard will have a much greater impact on US companies, making
the huge levels of reward in the US unsustainable.

By Mike Berry

Comments are closed.