View from City Road: Battle over M&G share options

The fund management industry is probably going to lose a battle at a shareholders' meeting today over M&G's executive share options. But it should win the war.

The story so far is that the National Association of Pension Funds and the Association of British Insurers say M&G's plans fail to meet a 'fundamental requirement that exercise of executive share options should be subject to some realistic measure of management performance'.

This criticism is exceptional, given that NAPF and ABI members are in fund management, just like M&G. The trade bodies argue that industry will not observe the joint guidelines on share options if a prominent City firm does not.

But this row is not as clear cut as it seems. M&G executives' options will be issued at market price and exercisable after three years, as long as the price has risen. So exercise is not performance-related and does break the guidelines.

There is no attempt to link the scheme to the relative performance of M&G over a period, for example through comparing total returns to those of a peer group of companies, or pinning rewards to earnings growth.

M&G's argument is that it is relating the options to performance, but at the other end of the process - when they are handed out. The better an executive does, the more options he or she will be given each year. This allows individual performance to be measured, which cannot be done with a scheme relating rewards to broad measures of corporate performance at the time of exercise.

That is a respectable argument, and perhaps the guidelines should be changed to give some credit to firms that think the same way. But M&G should still have put a performance element in the exercising of the options.