Directors of failing firms face cap on severance pay

"Golden goodbyes" for fatcat directors could be capped at six months' pay, under a crackdown being planned by the Government.

Patricia Hewitt, the Trade and Industry Secretary, is preparing to publish a consultation document on limiting pay-offs to directors of poorly performing firms.

There has been a series of revolts by shareholders over the size of pay-offs. More showdowns are expected this week when some of Britain's biggest companies hold their annual general meetings.

Corus, the former British Steel, angered unions and shareholders alike with plans to scrap profit targets for executives, who will now be able to claim giant bonuses even if the company sinks further into the red.

Yesterday Peter Hain, the Welsh Secretary, attacked "excess" in the boardroom and said it gave the impression that "the very few at the top can get away with almost anything". He said on GMTV: "You're seeing a mutiny among shareholders and, significantly, pension fund representatives, who've seen the values of pension funds reduced, affecting millions of people ... and then find one or two people at the top marching off with literally obscene levels of pay-offs as a result of losing their jobs or misdirecting their companies.

"Now we've got to address the issue and the Government is doing so."

Bob Mendelsohn, head of the troubled insurance company Royal & SunAlliance, gained £1.44m after he left his job last year. Adam Singer of Telewest and Ken Berry of EMI also left with multimillion-pound pay-offs, even though their firms were in trouble.

Twenty-three per cent of shareholders voted against resolutions at Shell's AGM where the chief executive, Sir Phil Watts, was criticised for a 55 per cent pay rise last year, bringing his salary to £1.8m. Shell's share price had fallen by more than a quarter.

The Government's consultation document, Reward for Failure, will offer a series of measures to bring an end to lavish "golden goodbye" deals.

DTI officials are looking at inserting performance criteria into executives' contracts and cutting the length of company director contracts to limit the pay-offs they can receive.

Ms Hewitt said this month that she did not approve of rewarding directors for the failure of their companies. In a speech to the Association of British Insurers' conference, she called for an end to "directors receiving extraordinary pay-offs for delivering falling profits, dwindling investment, redundant workers and out-of-date skills.

"This damages our economic prospects, threatens our stability and is just plain wrong," she said.

The review was welcomed by the Association of British Insurers, which represents big investors. The insurance industry holds about 25 per cent of shares traded on the London Stock Exchange on behalf of millions of policy holders.

LEADING COMPANIES FACING SHAREHOLDER REVOLTS THIS WEEK

CORUS
The former British Steel will hold its shareholder meeting at the TUC's London headquarters tomorrow with unions protesting outside. It will outline another emergency restructuring, which could close one of its remaining steel plants in Britain and cost 3,000 jobs – and then ask shareholders to vote on a multimillion-pound bonus scheme for the group's executive team. There were no bonuses at all last year because Corus lost £446m, so the replacement scheme being discussed this week will trigger payouts for executives based on "financial operating targets and personal operating objectives", rather than pre-determined group profits. A furious TUC has urged shareholders to register their opposition to the new scheme, and to a £550,000 "golden goodbye" for Tony Pedder, pictured right, who resigned as chief executive after the collapse of an asset sale.

ROYAL BANK OF SCOTLAND
The UK's second-largest bank faces a possible shareholder revolt today over the make-up of its remuneration committee, which sets executive pay. City guidelines state that board members should not serve for longer than 10 years, but Bill Wilson, on the remuneration committee, has done so, and could become the focus for smaller shareholders' anger. Fred Goodwin, chief executive, saw his pay package rise 64 per cent last year to £2.58m.

LEGAL & GENERAL
The insurance giant, which meets on Wednesday, has cut bonuses for policyholders because of the stock market slump and its own share price has halved but there has been no pain in the boardroom. The chief executive, David Prosser, saw his pay rise to £1.55m thanks to a £700,000 bonus and £179,000 from a performance plan. He is in line for a pension of almost £400,000 a year.

BAE SYSTEMS
There were bonus payments all round last year at the defence giant once known as British Aerospace, which has its AGM tomorrow, even though the company plunged £616m into the red and lost half its stock market value. Mike Turner, the chief executive, was awarded a £115,000 bonus, while the chairman, Sir Dick Evans, got £62,000.

EGG
Derek Higgs, whose proposals for tighter controls on boardroom behaviour have caused a storm in the City, could find himself with egg on his face at the AGM tomorrow of the internet bank on whose board he sits. Mr Higgs would not be considered an "independent" director of Egg under his own corporate governance criteria, because he used to work for Prudential, Egg's parent company. This would mean he shouldn't sit in judgement on the pay and conditions of Egg's executive directors.

By Stephen Foley