GEC retreats on boss's pay

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GEC is set to back down over the most controversial aspect of the remuneration package it intends to pay George Simpson, its new managing director.

The chairman of GEC's remuneration committee, Lord Rees-Mogg, indicated this weekend that the company was prepared to be flexible over Mr Simpson's bonus scheme - perhaps by raising the share-price growth target - to pacify the institutions.

According to Lord Rees-Mogg, much of the controversy has arisen because the company's room for manoeuvre over the size of Mr Simpson's pay package had been severely curtailed by the generous terms of his contract with Lucas, where he was chief executive for two and a half years.

"The size of the Lucas package dictated the terms to us," Lord Rees-Mogg said. "We had to make sure that we were offering more." While not blaming Lucas outright, Lord Rees-Mogg said that the "low share-price hurdle" of Mr Simpson's GEC share-related scheme was a direct result of matching the similar scheme at Lucas.

However, he reiterated that Mr Simpson was worth every penny. "Of all the people we considered, he was the most outstanding candidate, and we had a duty to the shareholders to get him," he said.

The package, initially worth up to pounds 1.5m a year in salary and pension contributions to Mr Simpson under his fixed three- year contract, stirred renewed "fat cat" anger last week among shareholders when it emerged that Mr Simpson would also receive up to pounds 4.8m-worth of share options if the GEC share price rose by 10 per cent in a six-month period within the life of the contract.

One leading institutional investor in GEC, Norwich Union, said the performance targets for the option scheme were "not challenging" and it would consider voting against Mr Simpson's appointment at the company's annual general meeting next Friday unless the package was modified.

The Association of British Insurers, backed by a number of GEC's institutional investors, will be taking the company to task on Monday over Mr Simpson's bonus structure in a meeting with GEC's chairman, Lord Prior. They will argue that it breaches the guidelines set last year by the Greenbury Committee on Directors' Pay, and their own guidelines about "appropriately demanding" performance criteria.