DATE PUBLISHED: SEPTEMBER 4, 2024
Total Shareholder Return (TSR) is an increasingly popular metric for determining long-term incentive (LTI) plans at Australian companies. While the measurement is viewed favorably by many institutional investors as an objective measurement of shareholder value creation, some of its flaws are raising questions among shareholders. An increasing number of ASX100 companies are adopting financial measures that are linked to shareholder returns, such as earnings per share (EPS), return on capital employed (ROCE) and return on equity (ROE), and TSR appears to be the most popular choice. However, simply using TSR as a highly weighted performance condition in an LTI program does not guarantee support from the investment community. Factors associated with the TSR condition, such as the vesting schedule, the peer groups selected, the presence of a positive TSR gateway or the length of the performance periods may arouse criticism and prove a challenge to attract shareholder support.
