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Last Updated: Tuesday, 3 June, 2003, 15:25 GMT 16:25 UK
Hewitt unveils 'fat cat' pay strategy
Boardroom image
Trade secretary Patricia Hewitt has published long-awaited proposals aimed at curbing big pay-offs for directors who quit failing companies.

In a paper entitled "Rewards for Failure", the government weighs up alternative strategies for tying directors' pay more closely to performance.

They include shortening directors' notice periods to one year or less, and encouraging firms to insert clauses limiting severance pay into their employment contracts.

The government has asked shareholder groups, trade unions, and business lobbies to comment on the document, and may come forward with concrete proposals later this year.

Shareholders are rightly concerned when directors leave failing companies and walk away with excessive payouts
Trade Secretary Patricia Hewitt

Business groups have urged the government not to legislate against 'fat cat' pay, saying that new regulations would create unnecessary legal complexities for big companies.

"Transparency and shareholder activism are the wasy to police directors' pay, not legislation," said Digby Jones, director general of the Confederation of British Industry.

However, the paper makes clear that the government has not ruled out changing the law to stop hefty pay-offs for directors who preside over share price collapses or large-scale job losses.

Chorus of protest

"Britain has some of the best and most successful businesses in the world. But the good reputation of the majority is being tarnished by the bad practice of the minority," Ms Hewitt said.

"We have no problems with big rewards for big success, but shareholders are rightly concerned when directors leave failing companies and walk away with excessive payouts."

The government's move comes in response to a growing tide of resentment over 'fat cat' pay over the past year.

Warning shot

Protests came to head last month when shareholders in drugs giant GlaxoSmithKline (GSK) sensationally voted down a pay package that entitled chief executive Jean-Pierre Garnier to up to $35m (22m) if he left the job early.

Glaxo's Jean-Pierre Garnier over 22m pay-off entitlement
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Their opposition was fuelled partly by a slump in GSK's share price in the two-and-a-half years since Mr Garnier took over.

It was the first time that shareholders in a British company had voted down directors' pay proposals, and sent out a powerful signal that investors' patience with underperforming company bosses had reached breaking point.

Several other blue-chip companies, including HSBC, Barclays, Reuters, and Shell, are also facing shareholder dissent over directors' pay.

Trade union groups said the government's move on fat cat pay sent out a warning shot to big companies.

"UK business leaders are now gambling at the last chance casino. Unless they stop rewards for failure, and curb corporate greed they will inevitably face tough legal changes," said TUC leader Brendan Barber.

The BBC's Rory Cellan-Jones
"It's not just workers who are complaining"

Patricia Hewitt MP, Trade and Industry Secretary
"We've insisted companies should publish an annual report on directors pay"

Fat cat law 'still an option'
01 Jun 03  |  Business
HSBC rebels lose pay battle
30 May 03  |  Business
Glaxo defeated by shareholders
19 May 03  |  Business
Government's 'fat cat' crackdown
27 Apr 03  |  Business

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