Fat-cat backers in firing line

DIRECTORS should be voted off company boards if they back big pay-offs to executives who are kicked out of their jobs, say Britain's biggest shareholders.

The Association of British Insurers and the National Association of Pension Funds, whose members together own about two-thirds of all UK shares, are drafting guidelines holding individual directors accountable if they sanction unjustified pay-offs.

The powerful investor groups are also expected to issue new rules on pension top-ups for directors, such as the £86,000-a-year retirement boost given to former BT chief executive Sir Peter Bonfield, who will receive £321,000 a year from his old firm on top of a £1.5m pay-off and £1.3m worth of shares.

One executive involved with drawing up the new guidance said: 'Investors haven't been happy with the way they sometimes get caught out when they discover a contractual obligation for an executive which doesn't seem quite right.'

The issue of payments for failure erupted again last week when it emerged that Bob Mendelsohn, ousted last week as chief executive of insurer Royal & SunAlliance, is likely to receive a £1m payoff while Mike Hughes, who quit at struggling cider-maker Bulmer, stands to pocket more than £600,000.

The ABI and NAPF plan to insist that rigorous procedures are followed when a top executive is appointed. 'Boards have a responsibility to think of all the issues at the time someone is appointed,' added the insider. 'When you hire someone, the tendency is to think that everything will be a huge success. People don't like to think about what might go wrong.

'But we think they should be held accountable if their nominations committees get it wrong and haven't thought through what might happen.'