Vodafone yields to pay protesters

Vodafone will this week scale down its controversial directors' pay and bonus package in an attempt to quell a shareholder revolt.

The deal, to be detailed in Vodafone's annual report, is expected to appease investors furious at the pay awards of the past two years, during a dismal performance in Vodafone's share price, which plummeted 70 per cent in that time. Last year investors fumed at Sir Christopher Gent's £6m pay package. Nearly 40 per cent of shareholders refused to vote for the complicated remuneration scheme at July's annual general meeting.

After a year of consultation with shareholders, Vodafone is believed to have introduced tougher targets for performance-related bonuses, as well as a scheme that is easier to understand.

But Sir Christopher is still expected to be paid a controversial £1.5m bonus, a hangover from an award received two years ago. He was offered a £10m one-off bonus after the merger with German company Mannesmann in 2000. Half was paid in cash then, with the rest held in trust, in company shares. Performance targets for the bonus shares have been met.

Due to a fall in the company's share price, the value of this bonus has dropped from £5m to about £1.5m. Although the original bonus caused an uproar, it is now said that Sir Christopher has seen the value of the shares plummet so has the incentive to drive up the price.

The influential National Association of Pension Funds (NAPF) has spoken against bonuses based on the completion of a merger. But it is expected to wave through this particular bonus. "These are old coals to start raking up," said David Gould, investment director at the NAPF, which represents funds holding around £650bn worth of assets. "I don't think we will fight yesterday's battle."

The organisation will study the fine details of the remuneration policy once the scheme is made public in the annual report, expected late this week. Vodafone is understood to be putting the policy to the vote at its annual general meeting, on 31 July. The NAPF will issue a recommendation to its members on how to vote.

The consultation process is thought to have ironed out most wrinkles. "[Vodafone's policy] has been thoroughly overhauled," the NAPF's Mr Gould said. As a result of the earlier rows, he expected Vodafone to publish a forward-looking policy "that will link the interests of directors and shareholders".

A spokesman for Vodafone said: "Shareholders have been supportive of our new remuneration policy. We have undergone a long, extensive process to ensure this."

Vodafone is expected to face other difficult questions at its AGM. In May it announced a loss of £13.5bn, the largest in UK corporate history. But underlying profits were higher than expected, at £10bn, and sales were up 54 per cent to £22.8bn.

The company's shares have performed badly this year, falling from 176p to 91p on Friday. This compares to a high of 400p in the heady days of the technology boom, when the company was the largest listed on the London Stock Exchange. It is now in fourth place, behind the oil company BP, the pharmaceuticals group GlaxoSmith-Kline and the HSBC bank.