GEC facing a climb-down on Simpson's pay

GEC faces a humiliating U-turn over its controversial remuneration package awarded to incoming chief executive George Simpson as angry institutional shareholders insist the electronics giant waters down the terms of the deal, or risk an embarrassing confrontation at next Friday's annual meeting.

Fund managers are increasingly confident they have got GEC on the run. "I am certain GEC will back down," one said yesterday. "Nobody wants a showdown. I am sure common sense will prevail."

The Association of British Insurers, the leading institutional shareholder body, will press GEC at a meeting on Monday to make certain performance requirements attached to Mr Simpson's package more challenging.

Many big shareholders complain that the targets which GEC has to beat before Mr Simpson can gain from a proposed phantom share option scheme are not stiff enough.

Denied the chance to vote on a deal that could net Mr Simpson pounds 10m over the next five years, some fund managers have threatened to vote against his appointment as a director because of their concerns about the package.

But the ABI will seek to head off a full-scale shareholder revolt by urging GEC to tone down the most contentious aspects of the deal.

These include a complicated share options grant based on pounds 4.8m of shares - or eight times Mr Simpson's annual salary. The options can be exercised as long as GEC's share price beats the FT-SE 100 average by 10 per cent in any six months within a specified three-year period.

Fund managers insist these targets fly in the face of the Greenbury committee's recommendations to curb excessive executive pay, and should be made more demanding and meaningful over a longer period. A leading investor said: "Greenbury says performance targets should be challenging, but Simpson's terms are about as challenging as asking a man to go to the loo every day."

"What we want is outperformance on a sustained basis," another argued. "There are many ways GEC could outperform the market by 10 per cent over six months. It could buy in 15 per cent of its shares or announce a demerger plan.

One suggestion is that Mr Simpson's phantom share option scheme be replaced with a long-term incentive plan similar to those that have become fashionable among leading companies.

This could involve GEC's share price or total return to shareholders being in the top quartile of FT-SE 100 companies, or another comparator group, for at least a year before Mr Simpson's cash or share bonus scheme kicks in.

Another, more flexible option is to adopt a sliding scale of awards linked to GEC's relative performance.

Mr Simpson is due to begin his three-year contract when he takes over from Lord Weinstock in 10 days. But if no agreement is reached by Wednesday, the deadline for proxy votes, GEC also risks shareholders opposing the re-election of Sir Christopher Harding as a non-executive director.

Sir Christopher, who is chairman of the Legal & General insurance group, is the only member of GEC's five-man remuneration committee seeking re- appointment on Friday.

"I think the entire remuneration committee should resign," one livid fund manager said. "If a member is standing for re-election he should be voted off. This whole affair is typical of GEC and Lord Weinstock. It shows their arrogance and lack of concern about investors."

While most institutions are determined to bring the issue of Mr Simpson's remuneration package to a head next week, some remain reluctant to go to the wire as there is widespread acceptance the new GEC boss is the best candidate for the job.