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Review staff incentive plans, says PwC. By Dan Martin

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19th Sep 2006
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Companies that rely on incentive share plans to attract and motivate staff should review the schemes now that, under international accounting standards, they are charged as expenses against profit, PricewaterhouseCoopers (PwC) has urged.

The accountancy firm said with the publication of 2005 annual reports, the true impact of International Financial Reporting Standard 2 (IFRS2) has become clear for the first time.

Under IFRS2, all options granted after 7 November 2002 are recorded as outgoings in company accounts. Previously, only discounted share awards gave rise to a charge.

According to PwC data, FTSE 250 technology firms saw profits reduced by 12% as a result of IFRS2, while telecommunications profits were reduced by just 1%. Profits were reduced by over £4bn across the FTSE 350 as a whole.

The firms said as a result of its evidence of how IFRS2 is affecting profits, companies should review their incentive schemes to ensure they are generating value.

Graham Ward-Thompson, PwC partner, said: "Accounting standard IFRS2 means that having the right share scheme becomes even more important for businesses. Companies need to strike a balance between having a share plan that motivates their people, while minimising the impact on profits.

"A switch to restricted stock programmes may be one route to a reward system that is more highly valued by employees. Other options that may soften the IFRS charge include reductions in the discounts offered by some firms in Save As You Earn schemes, or a move from Save As You Earn towards Share Incentive Plans, introduced by the Treasury in 2000."

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