N6 - Shares vs Cash Flashcards
Advantages of shares/equity
Cheaper
preserves cash for company in economic uncertainty eg COVID-19
can be a substantial reward for employees
Capital growth
Dividend income
Corporate and brand identity
Stake in ownership
Align interests with shareholders.
Advantages of salary/cash
Guaranteed pay for employees
Simple
Flexible
Comparable
Widely understood by employees
Disadvantages of shares/equity
Financial risk for employees
Can be dilution for company shareholders
Cost of administration
Not liquid assets
Complex, legal tax and regulatory issues
Sometimes hard to value the incentive
Disadvantages of salary/cash
Little incentive for increased performance
No scope for substantial benefits
No tax benefits
No alignment of interests with shareholders
Remuneration in the financial services sector
In FS, cash based remuneration has largely been replaced by share based remuneration.
After the global financial crisis, many of the larger firms in FS have been required to replace some of its cash components with shares or other equity.
This is not been fully replaced, but a much larger proportion of senior executive remuneration in FS sector must be delivered in shares or other securities .
The logic behind this is to encourage company leadership to seek long-term stability and success over short term gains .
