SECTION 5: EQUITY-BASED REMUNERATION

120 | Remuneration Committee Guide As with all remuneration matters, an RC should endeavour to strike a balance between the interests of management and the fair treatment of shareholders. 5.1.3 This section sets out the leading thinking, rules and practices in the use of equity as follows: • The role of equity in LTI plans. • The types of equity plans. • The design of equity plans. • The costs of equity plans and the accounting treatments. • Regulatory requirements on the use of equity for remuneration. • The RC’s role in the administration of an equity plan. • The communication of equity plans to plan participants, the regulators and investors. 5.2 Role of Equity Plans 5.2.1 As explained in Section 4 of this Guide, rewards should be aligned with performance over different time frames in order to recognise a company’s different strategic imperatives 3 . Whilst short-term incentives (STIs) fundamentally incentivise and reward performance over a short time frame (usually one year), LTIs reward the achievement of long-term performance measures. Some of these measures naturally fit with an annual process, particularly those based on financial reports. When it comes tomeasuring longer-termperformance, shareholder interests are best reflected by those measures which directly reflect returns to shareholders. By their nature, equity plans are aligned with shareholder returns. 5.2.2 Another objective of the remuneration system is to encourage key employee retention. The first step is to ensure that the total remuneration package is appropriately positioned when compared to similar companies. 3 Principle 7 and Provision 7.1 of the Code. 5A-1