Brown to waive right to share scheme bonanza

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The Independent Online
The chief executive of British Gas, Cedric Brown, is today expected to relinquish his right to a long-term incentive scheme that could ultimately have earned him shares worth up to pounds 2m. His decision will emerge as the company announces to the Stock Exchange details of the scheme, first revealed in April.

The move will be seen as an attempt to dampen the controversy surrounding British Gas since the end of last year, when it was revealed that Mr Brown's basic pay rose by 75 per cent to pounds 475,000. But the Gas Consumers Council warned that if Mr Brown is alone among directors in rejecting the scheme, his decision could be interpreted as a boardroom split.

Ian Powe, director of the Gas Consumers Council, said: "We expected the board to stand together to defend the performance bonus at a time when the company needs all the help it can get. British Gas needs a united board and this sends the wrong signals. This has to suggest they are not united."

British Gas refused to comment on the issue. The company has been plagued in recent weeks by speculation over the future of Mr Brown and has flatly denied rumours that he is to resign almost five years before he is officially due to retire. Some City analysts believe he may be pushed out next year but others point out that he has become a lightning conductor for fellow directors and for Richard Giordano, the chairman, taking the blame for any misfortune that hits the company.

In spite of Mr Brown's move to waive his rights, the renewed publicity over the incentive scheme is likely to spark fresh criticism. British Gas is expected to announce today to the Stock Exchange the notional allocation of shares to executive directors under the programme, which may be worth between 33 per cent and 125 per cent of basic salaries.

Under the scheme, shares may be notionally awarded annually but not released to the participant for five or six years. This period includes three or four years during which the company's performance in terms of shareholder returns is measured against other companies in the FT-SE 100. Shares are then vested in the individuals but not released for a further two years.

British Gas has defended the scheme as "encouraging a community of interest" between the company's senior management and its shareholders. The company has also stressed that it replaces previous executive share option schemes and annual bonus schemes.

The latest furore comes at a difficult time for British Gas, which faces a phased end to its monopoly on domestic customers from next April. Rival gas suppliers, including North Sea producers and electricity firms, are intent on entering the market, and are predicting that they can undercut British Gas by about 10 per cent.

The company is also dogged by problems on long-term contracts with North Sea producers that are forcing it to buy more gas than it can sell. The price being paid by British Gas is far above that available to rivals on the spot market.

Recently Mr Brown called for government help in re-negotiating the contracts, saying they were largely entered into before British Gas was privatised and the company had to buy enough gas to supply its monopoly market. By the end of this year, British Gas will have paid cumulatively for almost pounds 700m of gas that it must put under the "take or pay" contract conditions but cannot yet sell. According to some analysts the figure could hit pounds 1.3bn by 1998.

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