Why are companies cancelling their share based payment structures?

The current economic shutdown has brought about challenges for companies in South Africa as many are facing the cancellation of their share-based payment structures due to the dramatic variability in the prices of listed equities. This has raised concerns about the long-term compensation plans for executives, ultimately impacting investors and the stability of the market. The cancellation of dividend policies by companies is putting these long-term share-based payment structures at risk, leaving executives uncertain about generating significant returns. Guy Addison, Founder of Addison Advisory Services, highlighted the importance of this issue, emphasizing that executive decisions are heavily influenced by these long-term incentives tied to increasing share prices. Addison pointed out that there has been little innovation in these structures in the past 15 years, calling for a reset to adequately remunerate executives and ensure better alignment between structures. He suggested that current restricted instruments should be unrestricted to allow executives to hold shares in their own name, reducing the need to sell shares to settle obligations. This change could potentially reduce market volatility and benefit both executives and shareholders. The impact of these changes is substantial, not only for executives but also for investors who rely on dividends to generate returns. With many companies facing pressure to maintain liquidity, dividend payouts are being delayed or cancelled, affecting the overall effectiveness of share-based payment structures. Executives are now tasked with revisiting these structures and advocating for adjustments that better suit the current economic landscape. The challenge of capital flight from stock markets further complicates the situation, requiring boards and professional managers to find new agreement structures that address the concerns of ordinary shareholders. As companies like Bank of Kigali and I&M Bank in Rwanda announce extended dividend payouts to comply with regulations, similar actions may be observed in South Africa as boards reassess their payment structures at a significant cost. In response to the shifting landscape, companies in the property sector are already announcing cancellations of dividend policies to conserve cash flow. This trend is likely to expand across various sectors in the South African economy, signaling a broader impact on investors, executives, and the market as a whole. Ultimately, the need for innovation and adaptation in long-term incentive structures is crucial to ensure the sustainability of these systems amidst economic uncertainties.