Eircom's agreement to accept the earnings per share criterion as the measure of performance against which its executives could be awarded shares if shareholders agree to a share option plan must be seen as a victory for the Irish Association of Investment Managers (IAIM). And for Eircom's shareholders.

With a requirement that earnings per share be increased by the consumer price index plus 5 per cent, executives will have to deliver performances capable of boosting the share price before any options can be issued.

But having bought their own shares at the flotation price of €3.90, many Eircom shareholders will be concerned that executives are likely to be awarded options to buy Eircom shares at considerably less than this price. There are no IAIM rules covering the share price at which options can be issued other than that it cannot be less than the market price at the time of issue.

So the price is a matter for the Eircom board. At current market prices the options could be issued at share price between €2.55 and €2.60, some 30 per cent below the flotation price. It must now be time for IAIM to revisit its rules to deal with an Eircom-type situation. While it is unusual that an option scheme was not put in place at the time of flotation, when the option price would have been at the €3.90 flotation level, companies can seek share option plans for executives after the share price has fallen.

It is surely not beyond the ability of experienced fund managers to devise a formula on the issue of price to ensure that shareholders' interest are protected.