Executives can bet against their company's share price. Investors don't like it, writes Miriam Steffens.

Just how far should executives go to align themselves with shareholders? It's the norm to hold stock. Some even bet the farm on the company by tying up their wealth in it. But what about hedging yourself against your own performance and the sharemarket if it all goes wrong? Just like the average punter, who buys a house, putting all his money into it, surely you should be allowed to take out some insurance for your options and shares?

Some shareholder activists beg to differ.

''If it's your job to improve the house's value and you go about making sure that you can't lose if you don't do the job, it's a completely different story,'' said Stuart Wilson, the chief executive of the Australian Shareholders Association. ''It is essentially betting against your own company.''

Top executives' use of options deals and other financial instruments to hedge their stocks and share-based incentives against economic losses first came into the spotlight three years ago. A report by an influential investment funds body, the Australian Council of Super Investors, found many of the top 200 companies left their shareholders in the dark about their executives' handling of performance pay.

A Herald survey of the top 50 companies on the ASX shows that since then boards seem to have largely woken up to the fact and introduced share-hedging policies, almost all of which include a blanket ban on securing unvested long-term incentives.

The shift had been backed by the Australian Institute of Company Directors, which opposes any executive hedging before vesting as ''at-risk'' pay should remain exactly that - at risk.

Deals to safeguard already vested incentives and shareholdings against economic losses should be monitored, the exchange recommends.

The dealings have been thrust back into the spotlight over recent months as company leaders including the Bank of Queensland's managing director, David Liddy, sold down large chunks of shares.

The Herald is not implying that they have acted improperly.

The issue is one of the aspects being looked at in the Productivity Commission's inquiry into executive remuneration, which will report its findings later this year.

''For a large number of companies, it's really unclear - it's murky - as to what's going on with these sorts of financial arrangements,'' said Ian Ramsay, the director of the Centre for Corporate Law and Securities Regulation at the University of Melbourne. ''There is legitimate shareholder concern about some of those arrangements.''

The main argument was the equity has been fully earned by the managers, who have met their targets and performance hurdles, and was now part of their personal finance affairs.

Once shares ''have vested and they are no longer at risk, then executives should be free to deal with them within the requirements of the law and the company's policies,'' Wesfarmers said.

It's a view echoed by many remuneration experts in Australia and offshore, some of whom have likened the deals to stop-loss orders any shareholder can enter.

Just like companies themselves, pay experts and activists have conflicting views on how companies should handle incentives that have cleared time and performance hurdles to vest.

Yet most agree that transparency over such deals should improve. John Shields, an associate professor at the University of Sydney's faculty of economics and business, concurs. ''With all such dealings, I would have thought that both the market and shareholders are entitled to know what's going on,'' he said.

''Basically, if an executive hedges their bets, that suggests to me that they anticipate that there might be market developments that might not be as favourable as ordinary shareholders might be expecting.''