Mr Alfie Kane (right), group chief executive, Eircom, with colleagues Mr Malcolm Fallen (centre), group financial officer, and Mr Gerry O'Sullivan, director of group corporate relations.
The Irish Association of Investment Managers (IAIM) has objected to elements of a share option scheme put forward by Eircom because it considers it too generous to executives.
The Irish Times understands the IAIM considers performance criteria set for senior Eircom management under the proposed plan are not sufficiently demanding. Because share option schemes dilute the interests of the existing shareholders, the IAIM insists executives who benefit must perform to provide enhanced returns for shareholders.
Eircom confirmed it had put a proposed share option plan - which could benefit its executive team and senior management - to an IAIM sub-committee. The company aims to have a share option plan ready to put to its shareholders at its annual meeting on September 13th.
"Nothing is finalised yet. We are having constructive dialogue with IAIM on the issues. It is still under discussion. We are working to put a scheme in place which will be consistent with those of other companies operating in a plc environment," its spokesman said.
Any proposed scheme would have to be approved by Eircom shareholders at the a.g.m. Shareholders are entitled to receive details of any resolutions to be put to the a.g.m. 21 days before the meeting.
IAIM chief executive Ms Anne Fitzgerald declined to comment on "any discussion between companies and the association".
But fund managers have suggested that discussions so far between the parties have been difficult and were now effectively stuck on the issue of agreeing acceptable performance criteria for Eircom management.
The IAIM generally examines any proposals by public companies to create incentives for their executives because such plans usually involve the dilution of shareholders interests. Such plans usually involve some form of share option scheme whereby senior executives become entitled to buy company shares in the future at a price agreed now in return for achieving set performance targets.
Share option plans can provide lucrative cash sums for executives where the company's share price performs well - they can exercise their share options at the grant price and then sell them at the market price. For example if 10,000 share options were granted at the current Eircom price of €2.70 and the share price in a year had risen to €3.90, an executive who exercised his options and sold his shares would make a cash gain of €12,000 (£9,451).
Usually such schemes are put in place when a company is floated on the Stock Exchange and can be updated or changed by shareholders at annual meetings. Eircom signalled at the time of its flotation that it planned a share option scheme which it said would be "agreed with the Irish Association of Investment Managers".
Under IAIM guidelines no more than 5 per cent of a company's issued share capital in any 10-year period should be issued under basic share option plans. An additional 5 per cent can be issued only on the basis of exceptional performance. The grant price must "not be less than the average price of shares in question on the dealing day preceding the time when the participation is granted".
Participation in schemes is limited to executive directors and employees "required to devote substantially the whole of their time to the business of the grantor company or its subsidiaries". Among the main performance criteria are earnings per share growth, total shareholder return and economic value managed, all underpinned by the financial performance of the company.
