2024 Bonus & LTIP Target Setting Toolkit

Alvarez & Marsal

Setting performance targets for both short and long-termincentives remains one of the key activities in the remuneration committee’s annualcycle. It has always been a difficult task to fairly balance the interests ofall stakeholders, ensuring targets are sufficiently stretching to satisfyshareholder expectations while at the same time being considered fair andachievable by management. It has become even more challenging during thecurrent period of prolonged geo-political and macroeconomic uncertainty.

Effective target setting starts with process. This includes ensuring that the company’s expected performance, as it is captured in the annual budget or the long-term business plan, is scrutinised and agreed upon by the board before being used as the basis for incentive target-setting by the remuneration committee. Then relevant data and reference points need to be provided to the remuneration committee to support their judgment in calibrating the target ranges.

As with any decision for a remuneration committee, it is important that the targets are set in the context of the specific circumstances and needs of the business, rather than by simply following market norms. At the same time, it is only natural for remuneration committees to ask, “how does this compare to what others do?” Therefore, providing relevant market reference points can help the committee make an informed judgment when target setting.

The purpose of this ‘toolkit’ is to support remuneration committees and reward teams in this task by providing a range of market reference points on performance targets for profit metrics within both the annual bonus and long term incentive of companies in the FTSE 100, FTSE 250 and FTSE Small Cap. We focus on profit, as it is the most used metric - often with the largest weighting, in UK-listed incentive plans.

The data points in this report are sourced from our A&M incentive targets database, which is based on the latest available public disclosure from companies with year-ends up to 30 June 2023.

Read the full toolkit here.

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