The number of European companies using share options to reward their chief executives and other leading directors has dropped significantly in the last three years.
In contrast, alternative long-term incentive (LTI) vehicles have increased in popularity, according to a new survey by Mercer Human Resource Consulting.
In 2004, 63 per cent of companies offered share options compared to just 41 per cent in 2006 - a reduction of more than a third.
The average grant of options as a proportion of the LTI package also fell, from 45 per cent in 2004 to 24 per cent this year.
The survey, which covered 105 large companies across Europe, found that other LTIs have become appreciably more popular.
In the UK and Ireland, the use of performance shares has increased, from 70 per cent of companies three years ago to 84 per cent now. Their weighting has also gone up, with the average allocation rising from 50 per cent to 70 per cent of the LTI mix.
Richard Lamptey, principal at Mercer, said share options were increasingly seen as less cost-effective than other LTIs in providing executives with a real interest in the business.
He noted: "However, companies need to think carefully about the relative merits of different LTI vehicles, to support their business strategies and projections."
In Continental Europe, use of performance shares has remained relatively constant while restricted stock units, which are settled in either cash or stock after a specified time, and long-term cash plans have become more popular.
Mr Lamptey said: "In Continental Europe, the legal framework governing share-based incentives is generally not as permissive as in the UK and Ireland, so performance shares are used less frequently as an alternative to options."
Less onerous disclosure requirements in Continental Europe may allow employers to provide rewards to executives without the link to company performance that is standard in the UK.
The survey found that 94 per cent of companies in the UK and Ireland attach performance conditions to their LTIs and virtually all of these (94 per cent) link them to the vesting of options or shares.
This is higher than in mainland Europe, where 85 per cent of companies attach performance conditions to at least one of their LTIs. Nearly two thirds of these (62 per cent) apply them to the vesting of options or shares, while 59 per cent attach them to the grant of options or award of shares.
Despite increasing pressure from shareholders, on average less than half the companies involved (43 per cent) plan to enhance compensation disclosure in their 2006 annual report.
However, among smaller companies, those with fewer than 1,000 employees, the figure rises to two-thirds (67 per cent).
Of those companies that propose to enhance disclosure, the most common intention is to give more details about short and long-term incentive plans.