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Thursday, 12 December, 2002, 11:51 GMT
Investors get tough on 'fat cats'
pound coins
Covered in gold: Investors baulk at CEO pay demands
British shareholders are making a stand against generous pay awards for underperforming chief executives.

The Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF), whose members own about half the shares on the London Stock Exchange, are threatening to vote down hefty pay increases for lame duck bosses.

The NAPF and ABI say companies should draft their chief executives' employment contracts in such a way that salary increases are tied more closely to performance.

Companies should also ensure that employment contracts do not oblige them to pay hefty bonuses or severance packages irrespective of their chief executive's track record, the organisations said.

Reined in

If adopted, the NAPF and ABI's recommendations could spell the end of transaction bonuses - one-off payments to chief executives to reward them for clinching a strategically important acquisition or merger.

Such payments are controversial because they boost bosses' pay before the value of the transaction has been proved.

The NAPF and ABI's move highlights a groundswell of resentment over inflation-busting salary increases and severance payments for corporate chiefs who have presided over huge share price declines.

"Institutional investors have become increasingly concerned about executives leaving companies in circumstances where they have destroyed shareholder value... but appear to have been rewarded for that very act," said NAPF investment director David Gould.

Pay deals

Public anger at 'fat cat' salaries first erupted in 1995 over a 75% pay rise given to Cedric Brown, then chief executive of the newly-privatised British Gas.

Two years ago, unions and shareholders tried to block a 10m bonus awarded to Vodafone chief executive Chris Gent, following his firm's takeover of German mobile phone group Mannesmann.

Controversy surrounded a 1m pay-off to sacked British Airways boss Bob Ayling and a 2m 'golden hello' for former Marks & Spencer chief executive Luc Vandevelde.

A 1m settlement paid to former Marconi chief executive John Mayo, whose spell at the helm coincided with a sharp slump in the firm's share price, was also heavily criticised.

It emerged last month that Mr Mayo was suing his former employer for 1.6m to make up for a shortfall in the value of his pension fund.

Legal moves

More recently, furious shareholders headed off an attempt by pharmaceuticals giant GlaxoSmithKline to award chief executive Jean-Pierre Garnier a new pay deal worth up to 18m ($28m).

Efforts to curb fat cat pay will get a boost next year when new legislation giving shareholders the right to vote on executive pay packages comes into force.

Conservative MP and former Asda chief executive Archie Norman was due this week to put forward a legislative proposal in parliament aimed at tying severance deals for chief executives to their performance.

See also:

11 Dec 02 | Business
22 Nov 02 | Business
08 Nov 02 | Business
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