A quick plug for the excellent report by the High Pay Centre on performance-related pay, No Routine Riches. This is the outcome of a year-long project looking at performance pay, and how it can be reformed.
If you read the report you'll get a sense of real scepticism that performance-related pay is worth the effort. Aside from the significant fundamental problems it faces (does paying for performance really improve performance? do recipients want or value variable pay? etc) in practice it has been very hard to attribute performance to individuals or to get non-gameable targets right. In practice variable pay has ballooned to offset the fact that it's not a 'sure thing', meaning that execs are taking an ever larger slice.
The HPC says we could simply do away with performance pay (which would be my preference - scale it right back), but in the medium term it suggests getting right of LTIPs, paying in cash rather than shares and banning golden hellos in most cases. If enacted these reforms would mark a significant shift in the centre of gravity in UK corporate governance.
For what it's worth, I've lost count of the number of investors and corporates who have told me that LTIPs are rubbish, but they think they are what is expected. We currently have an executive pay system in the UK that many people think is fundamentally flawed, but it continues because it's easier to deal with some familiar even if it doesn't work.
The system is rotten - it's time to kick it over.