Standard Life is targeting profits growth of between 15 and 24 per cent annually for the next three years according to the new executive bonus scheme, which the company hopes will help answer concerns over its high level of investment and strategic direction.
The company’s shares were hit hard in the wake of its full-year results last month, falling 6.5 per cent on the day and 13 per cent over subsequent days, after David Nish, chief executive, refused to say when the spending on investment spend would finish or give any targets for the returns it would produce.
Standard Life, which is trying to transform itself from a traditional pensions and life assurance company into a higher growth technology and asset management business, has hinted that there should be better guidance for analysts and investors about its new long-term incentive plan (LTIP) for executives and it published details in its annual report on Friday.
To qualify for any awards under the new LTIP, Mr Nish and colleagues must produce IFRS operating profits of between £400m and £600m for 2012 and between £650m and £800m for 2013. Operating profits were £435m in 2010, up 24 per cent year-on-year.
Andy Hughes, analyst at Exane BNP, said the 2013 targets were well ahead of analysts’ consensus forecasts and added that they sent a strong message on investment spending plans.
“The new target for IFRS operating profits shows in our opinion that management cannot grow investment expenditure and are incentivised to reduce this before 2013,” he said.
Duncan Russell at JPMorgan said the 2012 targets were in line with his forecasts and that while he had not yet forecast 2013 profits, “we do think it is a strong progression, if achieved, over the 2012 figures”.
Standard Life shares rose 2.2 per cent to 211.3p.
The LTIPs for 2010 and 2011 will give Mr Nish, Keith Skeoch, head of Standard Life Investments, and Jackie Hunt, chief financial officer, 200pc of salary at the time when the awards are made. The amount of the shares that will vest depends on earnings in 2012 and 2013 hitting predetermined milestones between the profit targets. However, those milestones will only be disclosed retrospectively when the LTIPs vest.
Standard Life said that the move from embedded value to IFRS in both its key financial reporting and its bonus scheme was meant “to reflect [our] change from life and pensions company to a leading customer centric long-term savings and investment business”.
“Without this change there was a risk that the bonus plan would be driving behaviours in a different direction to the group’s strategy,” it added.
The company has also included a clawback for both the annual bonus and LTIP, which can be invoked up to two years after the granting of an award or the vesting of shares from an LTIP if there is any executive misconduct or if there is a need for a financial restatement.
For Mr Nish, the 2010 LTIP could give him up to 779,000 shares. In 2010, he earned a basic salary of £720,000, an annual bonus of £1.1m and £1.97m in total including pensions and benefits. The 2008 LTIP lapsed without vesting after the company missed its return on embedded value targets.