David Prosser: How long-term performance plans became a sure thing

Outlook People say the bookie always comes out on top. Well not if you're Richard Glynn, the new chief executive of Ladbrokes, who has emerged as very much the winner from contract negotiations with his new employer. Though Mr Glynn will receive a relatively modest basic salary of £580,000, less than his predecessor earned, there is naturally a generous bonus scheme on offer. He'll also be handed 1.177 million Ladbrokes shares, worth £1.75m, on arrival at the company as compensation for the "current remuneration and equity interests which he will be required to relinquish the role".

It's not clear exactly what those interests are – Ladbrokes won't say – but it's a fair bet that they relate to long-term performance plans of one sort or another at some of the other businesses with which Mr Glynn has been working of late. In other words, since Mr Glynn isn't now going to get the long-term rewards he might have been entitled to at these firms, Ladbrokes is giving them to him instead.

We have been here before with these golden hellos, most recently with Marc Bolland, the new chief executive of retailer Marks & Spencer, who is to be fully compensated for the performance rewards he has lost out on by giving up his job at supermarket group Morrisons.

Such deals make a nonsense of the whole point of long-term incentive plans. These were supposed to align the interests of senior managers with shareholders who would like to be able to bank on keeping their stakes for an extended period, safe in the knowledge that executives aren't shooting for short-term targets. If these executives can walk away from the plans at no cost to themselves, it rather defeats the objective. Sooner or later, Ladbrokes itself may be confronted by this problem. On top of the golden hello, Mr Glynn will also be getting a new long-term plan, worth almost £12m, if the company's share price reaches £2.97 over the next five years, around double the current level.

Interestingly, this is an absolute benchmark with no reference to the performance of Ladbrokes' peers, which is in itself controversial – the target could, in theory, be reached by a rising market with no outperformance by the bookmaker of its rivals.

More germane to the golden hello debate, however, is the fact that should another company feel like spiriting Mr Glynn away from Ladbrokes, it will just compensate him for giving up these awards. In other words, the Ladbrokes scheme, like all other such plans, is only long term in that it will endure for as long as another employer doesn't want Mr Glynn sufficiently badly to pay it up.

None of this is to criticise either Mr Glynn or Ladbrokes. The bookmaker clearly feels it has to pay in order to get its man, who can't be blamed for driving a hard bargain.

Still, it is time to think again about how senior managers are incentivised. The long-term investment plan has become a ubiquitous part of the remuneration package for any self-respecting executive. In part, that is because of the backlash against very large basic salaries and the sort of short-termism in the boardroom that huge annual bonuses were thought to be encouraging.

We have, however, simply swapped one problem for another. While it makes sense for businesses to look to the long-term, it is also healthy to have a pool of senior executive talent that is mobile. And when companies want to hire such talent, they now feel obliged to offer compensation for rewards foregone elsewhere.

Ultimately, you might argue, it is the same shareholders who pay the bill. But the alignment of their interests with those of management has nonetheless gone awry.