GEC scraps three-year rolling contracts

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The Independent Online
THREE-YEAR rolling service contracts for GEC directors have been abolished in response to calls from large shareholders for directors to be given fixed-length terms.

Lord Weinstock, managing director, said yesterday that the company had drawn up new contracts for the three executive directors - including David Newlands, the finance director - who had evergreen contracts.

Instead of always having a further three years to run, the new contracts are for a fixed period of three years, though they have retained a one-year rolling element. This means that the directors may have as little as one year's notice at any one time.

Institutional investors - notably Postel, which invests the BT and Post Office pension funds - object to rolling three-year contracts because they give rise to huge compensation payments. Ousted directors can claim three years' salary as compensation.

In addition, the company has introduced bonus schemes, linking pay to performance, in operating companies. It has yet to link directors' pay to earnings per share.

The news emerged as GEC announced a 4 per cent increase in pre- tax profits to pounds 863m in the year to 31 March. Earnings rose 6 per cent to a record 19.7p a share, and the dividend was increased 7.3 per cent to 10.3p.

The cash pile rose to pounds 2.2bn and the order book to pounds 12.3bn. Research and development spending fell slightly to pounds 1.3bn, of which pounds 398m ( pounds 417m) was funded by the company rather than its customers.

Lord Weinstock said there had been a big increase in efficiency, especially at GEC-Alsthom, the Anglo- French joint venture. Margins improved and capital employed fell.

The company remains keen to help finance infrastructure projects at home and abroad provided it receives orders. Earlier this week, it was invited to tender for a leasing contract for British Rail trains.

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