Despite the high level of opposition - unusual if not unprecedented in a vote on executive pay - GEC's chairman, Lord Prior, and its managing director, George Simpson, said afterwards there was no question of amending the scheme. Institutions, led by Standard Life and National Provident, have criticised the scheme heavily, complaining that the performance targets which trigger the option awards are not sufficiently demanding.
Under the scheme, executives will be entitled to cash in 35 per cent of their options if GEC's total shareholder return (share price increase plus dividends) puts it above the median compared with the rest of the FTSE 100 index and 100 per cent if it is in the top quartile.
After the two-hour meeting at the Park Lane Hilton, London, heavily guarded by a 50-strong security force to prevent infiltration by arms protesters, the share options scheme was approved with a 61.7 per cent majority. The vote was 706 million in favour and 438 million against. However, there was a high level of abstentions with only 40 per cent of those eligible to vote doing so. In total, the options scheme only commanded the support of a quarter of GEC's shareholders.
Alan McDougal of the corporate governance watchdog, Pirc, led criticisms of the options package. "We feel the hurdles are frankly less than rigorous. If you start from a low base they are not that stretching."
Mr McDougal attacked the complicated nature of the schemes and said they raised questions over whether the whole structure of boardroom pay at GEC was appropriate.
He added that GEC's pay incentive schemes should be devised to cover many more of its 80,000 workforce. Other shareholders took up this theme, saying the vast majority of GEC's employees were being left out.
However, Lord Prior mounted a steadfast defence, telling shareholders that the performance conditions were "tough and very stretching whilst also being credible and something to strive for".
The targets were also at least as demanding as those applying to the long-term incentive plans of competitor companies.
Appearing as chairman before the annual meeting for the last time, Lord Prior took a side-swipe at corporate governance rules which were applied too rigidly. Despite the "greed and grab" culture that had been the hallmark of some enterprises, Lord Prior said many others had stuck to the highest standards and levels of probity and integrity that were the envy of the world.
"In short, we must not get these issues out of proportion. By the same token we must not allow legitimate public fears about human nature's inability to control its own excesses to bind us into ways that inhibit those responsible for large enterprises doing what they believe best meets the needs, objectives and interests of all concerned including obviously shareholders, customers and employees."
After the meeting, Mr Simpson, shortly to become a Labour peer in the House of Lords, said the options scheme and an associated scheme under which executives can get an extra 25 per cent bonus in the form of shares would not be revisited. He also defended the performance conditions saying: "If we can get GEC's performance above that of the pharmaceutical and banking stocks in the FTSE 100 then I will be a very happy man."
Mr Simpson said that GEC's remuneration committee, chaired by the former editor of The Times, Lord Rees-Mogg, had discussed the options scheme with the Association of British Insurers and had agreed to amend it to satisfy three of the ABI's objections. But on the two substantive objections - the options being triggered by only median performance and the bonus matching shares - GEC had refused to budge.
Earlier, the meeting had heard a succession of shareholders take the board to task over GEC's record on arms sales. However, there was no repeat of the near riots that have wrecked shareholder meetings of defence companies such as British Aerospace.
In response to questions from Tony Hardy, investment manager for the Church Commissioners, Lord Prior said that only pounds 400m of GEC's pounds 2.4bn in defence sales were with countries outside Nato and only pounds 200m of those sales involved weaponry. GEC, he said, was operating in the best interests of its shareholders.
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