Unilever wants managers to invest bonus back in company??

I came across this news item on Unilever:

Unilever, the global consumer goods giant, has frozen the base salaries for executive directors and senior management members for the second consecutive year even as it formalises a new plan that will allow managers to invest a chunk of their bonus in company’s stock.

Coined as the ‘Management Co-Investment Plan’, senior Unilever managers worldwide will have the opportunity to invest as much as 60% of their annual cash bonus in Unilever shares and receive a corresponding award of performance shares. The new plan replaces the existing Share Matching Plan and encourages managers to take a greater financial interest in the performance of the company and the value of Unilever shares over the long term.

A Unilever spokesperson said “The proposed new remuneration policy is aimed at supporting Unilever’s drive for profitable growth and a level of performance amongst the best of our peers. The wider share ownership, and the revised measures for Global Share Incentive Plan (GSIP), will encourage greater commitment, engagement and alignment with our shareholders”.

The performance shares will vest after three years, depending on Unilever’s performance, continued employment and maintenance of the underlying investment. The vesting of 40% of the shares under award has been based on Unilever’s relative total shareholder return (TSR) against a comparator group of 20 other companies. 

I understand the challenges but I would think 60% of bonus in company’s shares is too high a number.

It is actually a problem shown by behavioral economics – most employees invest bulk of their savings into their company shares. This leads to under-diversification and employees becoming susceptible to poor performance of their companies. If a company performs poorly, it hits the employee both ways- one, he might be fired/his salary revised lower etc and two, his stock portfolio also takes a big hit. And so behavioral economists came out with all these default plans to help people spread their savings across financial assets.

Though, again I understand the concern of Unilever. It needs to ensure that people work in the interests of the organisation and get rewarded accordingly. So, may be it could rope in likes of Thaler to come out with a more appropriate percentage of investment in company shares.

Fascinating area of research

One Response to “Unilever wants managers to invest bonus back in company??”

  1. Nudge blog · Assorted links Says:

    […] As part of their bonus, Unilever senior managers are encouraged to invest as much as 60 percent of their cash bonus back in Unilever shares. The […]

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