Footsie firms face grilling over pay-offs

THE row over 'rewards for failure' will be reignited this week when three leading companies face strong criticism over pay-offs to directors.

Drugs giant GlaxoSmithKline, broadcaster ITV and insurer Royal & SunAlliance all face questions at their annual meetings about executive contracts that allow bonuses to be paid on top of basic salary if directors lose their jobs.

Under best-practice guidelines, executives should receive no more than a year's salary if they are fired or lose their job after a takeover.

But shareholder advisory group PIRC notes that the three companies also make provision for bonuses to be paid as compensation when contracts are ended.

'Preventing reward for failure is a buzz corporate governance term, and we fail to see how paying someone unearned bonuses when they leave is in keeping with that aim,' said PIRC analyst David Somerlinck. In all three cases, PIRC is recommending a vote against the remuneration report.

Rewards for failure shot to the top of the agenda two years ago when shareholders defeated GSK's pay report in protest at a potential £22m pay-off to chief executive Jean-Pierre Garnier.

A revolt on a similar scale is unlikely this time, as Garnier's notice period been cut from 24 months to a year and tougher performance targets have been put in place. But PIRC claims his total pay package remains excessive as he could receive up £16.7m - 20 times his salary - in any one year.

Under pressure from shareholders companies have been reducing the notice periods to stop directors receiving embarrassingly large 'golden goodbyes' when they quit.

But some, including ITV chief executive Charles Allen, insisted on being compensated in cash for what they saw as a loss of benefit.