European Software, IT services & Payments: Insights from management incentives structures

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European Software, IT services & Payments: Insights from management incentives structures

Key learnings

• Pre-share-based compensation metrics are still often used in assessments:

For example, DSY’s EPS definition is “non-IFRS” i.e. excluding SBC (share-based

compensation) which is commonplace in the universe. Additionally, for most

companies, SBC payments are equity-settled and therefore do not impact FCF

targets, which reduces alignment with investors.

• Incentive structures shifting to fundamentals: The European software sector

has faced a sell-off amid AI-related concerns, prompting adjustments in incentive

structures (Exhibit 1 and Exhibit 4). Across the sector, compensation frameworks are

increasingly centred on cash generation and profitability, with a gradual shift away

from TSR and EPS toward EBIT/EBITDA and cash flow metrics in both LTIPs and

STIPs. This suggests a move away from market-linked or purely accounting-based

measures toward a stronger focus on operational delivery and earnings quality.

• Low evidence of pay-for-performance: The relationship between shareholder

returns and executive pay has weakened in recent years. The correlation between

TSR and remuneration declined from 0.50 in 2023 to 0.38 in 2024 and further to

0.36 in 2025, suggesting only limited alignment between pay outcomes and

shareholder value creation (Exhibit 10). While some decoupling may reflect the

multi-year nature of LTIPs, the persistently modest correlation indicates that, at the

aggregate level, remuneration frameworks are not consistently delivering strong

pay-for-performance alignment. This is likely also influenced by the ongoing shift in

incentive design away from TSR and EPS towards more operational metrics,