Climbdown over top pay

Victory for Greenbury Committee over key recommendation on executive accountability

THE Stock Exchange is poised to back down from its opposition to one of the central recommendations in the Greenbury Committee report on top pay.

The victory for advocates of executive accountability will give shareholders the final say on incentive schemes that span more than 12 months, as originally proposed by Sir Richard's committee.

The Exchange had looked at extending the period to three years, sparking a storm of outrage led by Greenbury member Tim Melville-Ross, director- general of the Institute of Directors, who complained in December that it was backsliding.

But John Carney, a professional adviser to the committee and head of the remuneration practice at management consultancy Towers Perrin, said at the weekend: "There's little doubt in my mind that the Stock Exchange will revert to the Greenbury wording of 'more than one year'."

The climbdown is the first victory in the battle between leading members of the committee and its opponents. The latter are fighting a rearguard action by lobbying the Stock Exchange, which has responsibility for implementing the recommendations in its listing guidelines.

Mr Melville-Ross had warned that extending the exemption period would have encouraged companies to pitch incentive schemes between one and three years to avoid a vote by shareholders.

Although public attention has been focused on base salaries since the chief executive of British Gas, Cedric Brown, collected a 75 per cent pay rise last year, institutional shareholders are more concerned about long-term incentives and the executive performance to which they are linked.

"Base pay increases are visible but the long-term incentives can pay out far more," said Mr Carney. "They are really lucrative by UK standards."

Schemes such as share options and bonuses linked to specific measures of a company's performance have been used for years in north America to motivate executives. But unless they are structured properly, they can line directors' pockets without spurring them on to better results.

Many institutions are quietly pushing behind the scenes for more transparency, and are strong supporters of Greenbury in the fight to maintain its original recommendations.

The remaining dispute is over pension disclosure, which critics of Greenbury wish to water down. A formula proposed by the Institute and Faculty of Actuaries for calculating the transfer value of pensions was rejected by the Stock Exchange, and the proposal was sent back for public consultation.

The deadline for submissions to the actuaries is 9 February. The new listing guidelines are expected in the middle of the year.