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THE OBSERVER |
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Special report: Executive pay |
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New curbs on fat cat bonuses
Minister in attack on 'disgusting' huge pay-outs to failing bosses
Oliver Morgan, industrial editor Sunday September 9, 2001
The government last night launched a concerted attack on 'disgusting' pay-outs to so-called fat cat bosses and pledged to introduce tough new rules banning executives from receiving multi-million pound bonuses.
In a move that will infuriate some executives and delight ordinary investors, senior Ministers last night made clear they are determined to stamp out the system of 'rewards for failure' that have seen some executives walking off with Lottery-style jackpots after their company's value had plummeted. The move can also soften anger about executives' payoffs, at the TUC this week.
Making her first intervention on the growing row, Patricia Hewitt, the Trade and Industry Secretary, signalled her determination to prevent company bosses invoking clauses in their contracts when they leave, irrespective of how poorly their business is performing.
'When workers are losing jobs and investors are losing money then company direc tors should be sharing in the pain,' she said, in a direct attack on recent payments to directors who have overseen corporate disasters such as Marconi and Railtrack.
Aware of increasing dismay among shareholders about the issue of bonuses, the Government crackdown comes days after Lord Simpson, the Marconi chief, received a £2 million payoff after seeing the value of the once great industrial giant plummet by 95 per cent. Shares slumped from a high of £12.50 to 29.5p last week. While Simpson collected his payoff regardless, the company has been forced to announce that 10,000 people will lose their jobs.
Hewitt also attacked as 'pretty unacceptable' the £1.3m paid in June to Railtrack chief Gerald Corbett, who was forced to quit after failing to deliver on urgent reforms to Britain's railways.
Hewitt is considering several options as part of the Government's company law review, which will lead to a consultation paper on the issue later this year. A Government study this year stated that greater restrictions should be placed on the length of directors' contracts.
However, the final proposals are likely to go further. Hewitt wants shareholders to have a greater say in directors' pay packages, including the chance to vote on what they should include.
There are also proposals to insert penalty clauses into directors' contracts so that if their companies run into serious difficulties due to mismanagement, they should not be able to walk away with huge payouts.
Hewitt is known to have growing concerns over awards for chief executives as the crisis among technology companies and wider industry deepens. The issue of directors' pay has been simmering as companies' values have plummeted amid turbulence on the stock market.
In July, mobile phone giant Vodafone was forced to review its policy on directors' pay after shareholders revolted over more than 8m share options received by chief executive Christopher Gent after the company's share price had halved in a year.
Hewitt is launching her crackdown following mounting pressure from MPs. Martin O'Neill, chairman of the influential Commons Trade and Industry Select Committee, said last night there was no question that a tougher regime should be implemented to keep directors rewards in check.
'I have concerns about the fact that a number of senior executives are able to leave companies which they have impoverished through incompetence or lack of foresight with little in the way of financial penalties.
'For people who leave companies under a cloud in this way, who behave in a way that their contract can no longer be sustained, there ought to be a penalty involved.'
O'Neill said he believed such measures could be brought in by legislation and that this should be carried through by the Government as part of its review. |