JLR takes the long road with ‘phantom’ incentives for senior executives

The annual bonuses of Jaguar Land Rover Ltd’s senior executives now partly depend on the performance of parent Tata Motors Ltd’s shares, with so-called ‘phantom stocks’ substituting in for regular stock options or bonuses.

The decision comes at a time when JLR, Tata Motors’s UK-based subsidiary, faces growth challenges amid a slowdown in the Chinese automobile market and the US’s reciprocal tariffs, which could make premium cars such as Jaguar and Land Rover more expensive.

JLR said in its annual report for 2024-25 that it introduced a cash-settled long-term incentive plan last year for certain employees.

The incentive plan, which replaces JLR’s annual strategic bonus programme, is a phantom share scheme to reward the company’s senior executives based on business results and valuation. These are not real stocks and do not give equity ownership in the company but mirror the value of Tata Motors’s shares.

JLR accounted for 71% of Tata Motors’s revenue in FY25. Tata Motors’s share price has declined by more than 2% so far this year as against a nearly 3% rise in the Nifty Auto index. On Tuesday, Tata Motors gained about 2% to end at ₹732.70 on NSE.   

Employees eligible for the scheme will be rewarded a cash payment based on two things: the performance of Tata Motors’ shares over a period of three years and achievement of long-term business metrics.

“The scheme will provide a cash payment to certain employees based on the Group’s performance against long-term business metrics related to performance and strategic priorities and the share price of Tata Motors Limited over a period of three years,” Tata Motors said in its FY25 annual report.

In a statement to Mint, a company spokesperson said the decision to change the bonus pay structure was in line with industry standards. 

The long-term incentive plan accrues over a three-year period and “is in line with other industry long-term incentive plans and the interests of shareholders”, the spokesperson said, without elaborating on the details of the scheme and how the payouts will be made to senior management.

JLR’s annual report suggests the performance metrics are based on four indicators: retail sales, customer satisfaction, cash flow, and earnings before interest and tax margin.

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JLR’s employee retention strategy

Industry experts said incentive plans such as JLR’s phantom stock scheme allow companies to incentivise retaining employees for a longer period and also manage cash flows in the short term.

“From a stability perspective, considering that phantom option schemes are typically vested across a longer period, companies are able to retain employees for a longer period and manage their short-term cash flows, as opposed to bonuses, which may be required to be paid out more regularly to employees,” Ifrazunnisa Khan, counsel at Initium Legal Services, said.

Neha Sinha, founder and partner, Corporate Law and Policy Advisors, noted that JLR’s phantom stocks scheme allowed it to link incentives to its listed parent without having to dilute any shareholding.

“This route allows secondary businesses to bank on their more successful parent and group companies for incentivising their employees and advisors,” Sinha said.

JLR stated in its FY25 annual report that as its long-term incentive plan is cash-settled and based on phantom shares, it would not dilute the holdings of existing shareholders. 

Although JLR recorded £5 million as “employee costs” for FY25 in relation to its long-term incentive plan, no phantom shares were exercisable at 31 March 2025, the company added.

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Global headwinds for JLR

Tata Motors, India’s third-largest carmaker by revenue, is looking to stabilise JLR’s business as the UK-based subsidiary faces multiple headwinds that forced its management to hold back announcing growth projections for 2025-26.

In FY25, Jaguar Land Rover’s revenue fell 0.1% to £28.9 billion while profit before tax declined 30% to £1.8 billion. Retail sales declined 0.6% to 428,854 units. 

JLR’s largest markets include North America, China and Europe. In the US and China, the company is currently facing headwinds due to multiple factors including the threat of reciprocal tariffs by US President Donald Trump’s administration and the company’s slowing sales in China.

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JLR halted exports to the US in April to assess the situation before resuming in May. Also, JLR decided last year to discontinue all Jaguar models including XE, XF, XF Sportwagon, and F-Type, barring one. It plans to make Jaguar an all-electric brand by 2026.

“In JLR, discontinuance of ‘Jaguar’ models, loss of market share in the China region, and imposition of tariffs in the US region, shall lead to a volume contraction ahead,” analysts at Nuvama Institutional Equities said

Analysts at Motilal Oswal Financial Services said, “JLR continues to face multiple headwinds due to the tariff-led uncertainty in its key markets. As a result, management has refrained from giving any guidance for FY26 and beyond.”

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