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Back to Thought Leadership


Proxy Governance Update: Restricted Share Plans – A new resurgence

Since our April update, where we shared our key takeaways from our March Women’s Company Secretary Circle event, we have turned our attention to the here and now. Given that we are firmly in the AGM season, a lot of our work is focussed on helping the companies we are engaged with to articulate their messaging, whilst contemplating a year impacted by a global pandemic. Looking forwards, we are supporting companies to achieve optimal shareholder support for their AGM resolutions, in order to ensure that they are equipped to steer their companies through the next year; one which will hopefully yield a safer and more predictable environment for businesses to prosper and thrive. With this in mind we turn our attention to a perennial favourite – reward and recognition. How do Remuneration Committees and Boards structure their remuneration programmes for the short, medium and long-term?

In our next monthly update, we will deep dive into ethnic diversity, focussing on the background and aims of the Parker Review, and investor and proxy adviser policies and sentiment towards this. We will explore examples of Annual Reports where we are seeing ethnic diversity reported and conclude with our advice on key areas to consider through Board succession planning, implementation and reporting.


Notable Highlights:

  • Restricted Share Plans –a fresh insight into share award plans and Boudicca’s insight on their history.
  • Market views on Restricted Share Plans an analysis of proxy advisers and investors’ policies and voting precedent.
  • Case studies a sample of proposals with wide support from shareholders and instances of dissent.


Boudicca is pleased to share with you our research, in the midst of what is essentially another eventful proxy season. We have already started to see, and support, companies with the challenges they are facing in terms of setting long-term targets in relation to Executive Pay due to the uncertainty presented by the Covid-19 pandemic.

This issue raises a key question that many companies in the process of determining their remuneration practices and policies should keep utmost in their minds – are Long-Term Incentive Plans (LTIPs) still the best structure for executive remuneration? Companies and investors who may be contemplating whether this is the appropriate time to reassess their executive remuneration structure, should explore the benefits of an alternative remuneration structure, which might be more suitably aligned to the shareholder experience. On that note, Restricted Share Plans (RSP) are explored in more detail. Here, we briefly analyse how this type of share award has been developed and perceived historically and today, amidst the global pandemic.

We pose the following key questions

  • What is a Restricted Share Plan?
  • How are Restricted Share Plans being developed? Are they accepted in the market?
  • What do we need to take into consideration when developing these plans?


Restricted Share Plans – An Alternative Remuneration Scheme

There are different share award schemes that companies can use as a long-term incentive to retain and motivate their employees, including executive directors, to deliver the long-term sustainable success of the business. Among them, we find the Restricted Share Plan (RSP), also referred to as Restricted Stock Plan or Restricted Stock Unit in the US. This type of scheme can be put in place for different groups of the workforce:  ranging from the entire workforce – all employees, excluding executive directors; to executive directors only. This paper will focus on schemes where executive directors are eligible for the RSP, to consider the role this plays in executive remuneration.

Under an RSP, employees are granted a number of shares, which are likely to vest after three years, followed by a two-year post-vesting holding period. Employees receive shares at the prevailing market price on the vesting date. The preceding characteristics are common for both Long Term Incentive Plans (LTIPs) and RSPs. The difference for RSPs is that they are often not subject to performance criteria. In essence, the only requirement to receive the shares would be the continued employment of the employee during the vesting period. As such, investors are converging on a quantifiable underpin to avoid rewarding for failure.

We have seen the different ways that companies have added RSPs to their remuneration framework. Some of them may use a RSP as the only share incentive award for their executives. Other companies would rather use it in addition to a LTIP, or even as a replacement of the latter. In the event that a company decides to replace its current LTIP for a RSP, it is the expectation of investors that the awards granted should be at a reduced level Furthermore, it is expected that Remuneration Committees will use their broad discretion to diminish awards in the event of a decrease in share price.

For a deeper understanding, we have conducted research based on the data provided by Proxy Insight. In this study, we have analysed the trend in proposals connected to RSPs in several markets, focussing in more detail on the UK market, over the period 2018-2020.

Our research uncovered that the use of RSPs is common practice in countries such as France, China and Japan, whilst the converse is the case in the UK market. Nevertheless, as Figure 1 and Figure 2 displays, the UK and US in particular have increasingly put forward proposals related to RSPs.

Figure 1: RSP proposals trend by markets
Figure 2: RSP proposals trend in UK, US and Europe

In contrast, Europe has experienced a downward drop of 64% from 2018 to 2019. It is interesting to note that the number of RSP-related proposals in the UK increased from three to 20 during the period under review, with the main rise occurring in 2020. This trend may reflect that the majority of companies in our sample were starting to consider different remuneration structures due to the impact of the pandemic to address the issue in relation to LTIP target-setting.

Turning our attention to the UK, our analysis shows that 33 RSP-related proposals have been proposed for shareholder approval from January 2018 to 19 April 2021. With the exception of one proposal which was withdrawn, all were duly passed with ‘for’ votes ranging between 59% and 99% of votes cast. The lack, on average, of a steady trend of supporting votes, points to the fact that RSPs are assessed on a case-by-case basis by proxy advisers and investors, as analysed in the following section.

Figure 3: Average of FOR votes in RSP-related proposals in the UK

In Figure 3, a steep increase in the acceptance of this type of proposal from 2018 to 2019 can be seen, signifying the moment when RSPs started to experience a resurgence in the UK. However, the important change occurred from 2019 to 2020 when the number of RSP-related proposals rose from seven to 21, as displayed in Figure 1, which were accompanied by lower ‘for’ votes, on average. We believe this phenomenon to be directly related to the impact of the Covid-19 pandemic. With a large number of companies unable to set long-term targets within LTIP structures due to uncertainty regarding future performance, there has been a need to choose more adequate remuneration schemes.

However, we do not believe that companies’ inability for target-setting is the only reason why investors seem to have reduced their support for RSPs. We have also seen throughout the period under review how shareholders, in the majority, have based their ‘against’ votes on the lack of performance criteria. Our understanding is that some investors are reluctant to support these schemes and still maintain strict guidelines on this basis. Additionally, investors have shown opposition in a number of instances where they consider that the proposed RSP is either not accompanied by a sufficient reduction in quantum, dilution limits are excessive and/or the vesting period is too short.

Back in November 2020, in its letter to Remuneration Committee Chairs, the Investment Association (IA) ‘encouraged all Remuneration Committees to evaluate their remuneration structures to ensure that they were appropriately aligned with the implementation of the company’s strategy’. Furthermore, The Purposeful Company Study on Deferred Shares indicated that ‘there is widespread support amongst investors and companies for greater adoption of deferred share models than we see in the market today’ and ‘overall the consensus is that such plans might be appropriate for 25% of companies or more, as opposed to the c. 5% that we see in practice today’.


Proxy advisers and Investors – their positions on RSPs

The Purposeful Company developed a Progress Review of its first report in support of the IA members commitment to encourage greater adoption of alternative remuneration schemes in the UK market. Key findings of this study showed that the IA’s guidelines had sometimes been followed, and deviations from these guidelines appeared to translate into an ‘against’ recommendation from ISS, especially in respect of the percentage of discount applied to the quantum awards. On the other hand, The Purposeful Company remarked that neither Glass Lewis nor the IA had either issued ‘against’ recommendations or assigned a Red Top to companies on the basis of the discount alone.

As Table 1 shows, we can see an overall acceptance of alternative pay structures among proxy advisers. Nevertheless, analysis of these type of proposals are evidently on a case-by-case basis. Disclosure, long-term focus and strategic rationale are the key features which proxy advisers closely review when deciding whether or not to support a RSP or other alternative schemes.

Table 1: Proxy advisers’ views

ISSISS considers other pay structures with particular attention to:

  1. Consistency with good practice set in their guidelines
  2. Link between proposals and company’s strategic objectives
  3. Long-term focus
  4. Executive pay simplification
  5. Overall level of potential pay
  6. As with the IA, if newly issued shares are utilised, the overall dilution limits should be complied with.
Glass LewisRSPs assessed on a case-by-case basis. In line with IA, Glass Lewis expects at a minimum:

  1. Minimum discount of 50%
  2. Total vesting and post-vesting holding period of at least five years
  3. Grant accompanied by significant shareholding requirements, including a post-exit shareholding requirement of at least two years
  4. Appropriate underpin
  5. Long-term strategic alignment

  1. Strategic Rationale – Investors assess RSPs on a case-by-case basis, paying particular attention to sector factors and turnaround situations.
  2. Vital to exercise discretion on vesting outcomes to guard against payment for failure. Some shareholders have a preference for a quantitative underpin to be achieved prior to vesting.
  3. Preferred vesting period of at least five years with a minimum of two additional years of post-retirement shareholding requirement.
  4. Investors will factor in a company’s previous approach to remuneration. Suspicious of new proposals where existing remuneration framework considered to be appropriate or where new remuneration structures proposed only when current remuneration structures are not paying out to executives.
  1. PIRC is no longer supporting LTIPs as alignment is a contractual issue, the schemes are not long term; they are complicated; the accounting numbers are not suitable for dividends; they reward the mundane and share price volatility and pay out where there has been failure; they are virtually impossible to pre-approve.
  2. Exceptions for smaller high growth companies, which are cash constrained.
  3. PIRC expects there will be diverse approaches to executive remuneration over the forthcoming year in dealing with the crisis.

Similarly, as the IA explains in its Shareholder Expectations during the COVID-19 Pandemic report, shareholders will still consider the strategic rationale for the implementation of such schemes and additionally, the IA states that the inability to set meaningful performance targets is not a reason in itself to move to a restricted share model.

The following table contains information on the most active institutional investors who have voted on RSP-related proposals in the UK since January 2018.

Table 2: Top institutional investors view

InvestorRSP Policy
BlackRockSome companies might consider that a restricted scheme fits better with their remuneration philosophy. BlackRock expects these companies to provide detailed rationale to justify this decision. Moreover, the introduction of a restricted scheme should not result in a more complex pay package. Some more details are described in its guidelines.
Legal & GeneralL&G does not believe that RSPs are right for all companies. Therefore, companies will have to justify why this type of arrangement is appropriate and why the existing arrangement is no longer suitable. L&G expects a restricted scheme to have the attributes stated in its policy.
Vanguard Group A fund will vote on a case-by-case basis on equity remuneration plans for employees. In general, a fund supports companies adopting equity-based compensation plans for employees, so long as the plan or plans align with long-term shareholder interests and value. More details can be found in its policy.
SSGASSGA may not support proposals on equity-based incentive plans where insufficient information is provided on matters such as grant limits, performance metrics, performance, vesting periods, and overall dilution. Generally, SSGA do not support options under such plans being issued at a discount to market price or plans that allow for re-testing of performance metrics. See its guidelines.


Case Studies: RSP-related proposals in the UK market

“M&S have operated the existing RSP, with the support of Equiniti, since 2015. Our aim is to reward and motivate our employees, and we are delighted that shareholders continue to support us in our aims to incentivise our employees below Executive level”. Robert Lyons, Deputy Company Secretary, M&S.

From our research we can highlight that 20 out of 33 (c. 61%) RSP-related proposals received over 90% of ‘for’ votes cast, with the highest level of support at 2019 AGMs. Some investors noted that there were no serious concerns around these proposals. As mentioned above, Marks & Spencer’s RSP has been operating since 2015, with the RSP-related resolution at the 2020 AGM being an amendment to the plan rules, which was well received by investors. This was a package of wider remuneration proposals, all of which received over 98% support.

Of those RSP-related proposals which received high levels of support, we noted one particular company, Harworth Group plc, which received 100% shareholder support. This related to a proposed RSP as a replacement for their LTIP for Executive Directors and other members of the senior management team. The company stated in their 2018 Annual Report, that they engaged with a number of their largest shareholders and major proxy advisers before proposing the adoption of a RSP. Readers may be interested in the factors which will have influenced shareholders in supporting the proposal:

  • Harworth Group explained why this remuneration structure better aligned with the long-term and through the cyclical nature of their business;
  • the RSP awards are at 50% of salary, compared to maximum opportunity of LTIP of 100%, representing a 50% reduction in face value at grant;
  • there is a holding period of five years, after which shares can be sold;
  • performance underpins are included which take into account the Group’s financial health, the underlying performance of the business relative to the real estate market and the quality of corporate governance over the vesting periods;
  • there is Remuneration Committee discretion to make a downward adjustment to awards if any of the defined events occur or if the Committee considers that vesting outcomes would not be representative of the underlying business performance over the vesting period; and
  • there are provisions for change in control, good leaver, clawback and malus.

More details about Harworth Group’s Restricted Share Plan can be found in its 2018 Annual Report and 2019 Notice of Meeting.

On the other hand, on a review of those RSP-related proposals which, even though passed, received a significant level of dissent, it is interesting to note that the proposals which received the least support were proposed at special meetings. The voting rationale behind the negative votes varied between each proposal. Some of those with larger levels of dissent were due to concerns around the total quantum and the lack of performance hurdles, although some introduced one or more underpins.



Following Boudicca’s analysis, we can conclude that companies must ensure that they adopt the appropriate messaging as regards their intentions when proposing alternative remuneration schemes like RSPs. Additionally, there are several key points which companies need to focus on to ensure the success of proposed RSPs:

  • Strong rationale of why the structure is adequate for their business, aligned with shareholders’ interests and the company’s strategic objectives.
  • Disclosure and transparency around the scheme.
  • Reduction of the total quantum of awards
  • Long-term focus, including vesting and holding periods (5 years preferable).
  • Robust and quantitative underpins.
  • Engagement with shareholders and proxy advisers with clear messaging.

Our Corporate Governance Advisory team are available for consultation should further assistance be required in understanding the views and policies of the main proxy advisers and institutional investors on this topic.