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Ninth circle of LTIP

19 November 2020 By Aimee Donnellan, George Hay

Matthew Moulding is having a good year. Fresh from listing The Hut Group parent THG for 5.4 billion pounds in September, the founder of the beauty technology firm has already scooped a 900 million pound bonus because the shares have risen. The reason why: his long-term incentive plan (LTIP) looks excessively short.

LTIPs are supposed to better align executive remuneration with the long-term interests of the firm. A company may award its chief executive a large number of shares, but only hand them over in full three or more years down the line in case decisions taken in the meantime go wrong and crater the share price. The point is that there should be a risk the plan doesn’t pay out, and ideally awards should be based on a range of profit metrics rather than just an inflating share price. Former Marks and Spencer boss Marc Bolland, who left in 2016, was one big hitter who had to swallow a string of low LTIP payouts.

Moulding’s version is different. Rather than having to wait years and years, he has qualified to receive 100% of his shares just two months after THG listed. With his payout exclusively based on share price performance, all he has had to do was watch the shares rise by 30%. The upshot is he gets 139 million shares from a special pool earmarked for managers, and only needs to wait until March to cash them in. The windfall will hike his overall holding in THG from 18% to 25%.

Of course, company shares don’t go up unless investors like what they see, and all the pay details were clearly outlined in THG’s IPO prospectus. The maker of nutritional supplements like Myprotein is also already known for its idiosyncratic governance: when it listed, it opted for a standard rather than a premium listing, excluding itself from benchmark indexes. Moulding has a “founder share” which means he could block takeovers.

British housebuilder Persimmon riled investors in 2017 after a share-linked incentive scheme led to a 75 million pound payout. Still, its former CEO at least had to wait years for the shares to vest. THG’s business of selling creams and protein supplements is hardly competition-proof, so it would be appropriate to make its LTIPs genuinely long-term. The company should either do that, or call them something else.


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