War on bosses 'paid for failure'

A FRESH campaign to stamp out huge 'payments for failure' at the top of industry has been launched by the powerful Association of British Insurers. The ABI, whose members control almost a third of the stock market, have been spurred on by the so-called golden goodbyes for executives who pushed Marconi to the brink of collapse.

This type of pay-off is now almost guaranteed for departing bosses. Last year, a record 14 top executives received pay-offs of £1m or more, according to Labour Research, a trades union-sponsored think tank.

The figures do not include pay-offs to Lord Simpson and John Mayo at Marconi because the company has not yet published its annual report.

BT's Sir Peter Bonfield and Gerald Corbett at Railtrack would have been in the £1m-plus bracket if their pension payments had been taken into account. Peter Montagnon, head of investments at the ABI, told Financial Mail there was no quick fix because investors could not encourage companies to flout the contracts they had signed with executives.

The ABI wants to see if contracts for top bosses can be structured to eliminate large payouts if shareholder value has been destroyed and a company has performed considerably worse than its main rivals.

Montagnon said the ABI supported proposals by fund manager Hermes that golden goodbyes should be paid in instalments rather than in lump sums to allow companies to reduce the total if executives find new jobs.

And, he added, investors should be allowed to vote on executives' service contracts once new rules come into force that will compel companies to put their remuneration policies to the vote at annual meetings.

While executives are determined to sign contracts that give them a large cushion, Montagnon said shareholders did not expect bosses to be totally exposed. They accepted that companies sometimes had to be generous to secure top talent.

However, he added, it was necessary to establish 'best practice', which would give institutions leverage over companies simply prepared to shell out huge sums to failed executives. That would allow shareholders to exert pressure on boards to cut large payouts. This had happened at Marconi, he said, where Simpson's pay-off was cut from £1 million to £300,000.

The Labour Research study shows that Klaus Esser, former Mannesmann boss, received the largest payout. He was given £9.2m after the company was acquired by Vodafone, though the legality of that payment is under investigation.

Jim Mueller of beleaguered engineering group Invensys came second in the pay-off league table with £3.17m, followed by David Allvey of Barclays with £1.6m and Trevor Hilliard of Alliance & Leicester with £1.49m.

Peter George left the top job at Hilton with £1.4m, John Hoerner was given £1.3m when he walked away from fashion retailer Arcadia, and Jeremy Strachan pocketed £1.3m after losing out in the top-level reshuffle after the creation of GlaxoSmith-Kline. Sainsbury gave Dino Adriano, its ousted former chief executive, £1.2m while James Cochrane, another Glaxo casualty, got £1.2m.

John Parcell picked up £1.2m from Reuters, Arun Sarin left Vodafone with £1.1m and Ian Johnston was paid £1.1m on his departure from Cadbury. Andrew Bonfield of GlaxoSmithKline received £1m as did James Moore from International Power.