Guidelines sought on award of options

Members of the Greenbury Committee on directors' pay are pressing for guidelines on how share options should be awarded, to defuse the most explosive element in the current pay row.

Most of the big remuneration rises among privatised utility directors have been on the back of large awards of options.

The committee is expected to look into new methods of awarding options that avoid rewarding directors for share price increases brought about by a general rise in the stock market. Last year a survey by KPMG found that two-thirds of listed British companies were operating share option schemes without performance targets.

But a number of large companies have introduced sophisticated schemes creating a much closer link over a long period between individual and corporate performance and reward.

The Greenbury Committee is expected to look at these schemes as possible benchmarks for remuneration committees, which could be included in the pay guidelines it is to produce by the summer.

Both the award and the exercise of options can be related to the performance of the individual, the company or both.

But the committee is likely to shy away from suggesting earnings per share as the basis of measuring company performance, since this is falling into disrepute among experts in the field. Most believe performance measurement should be specific to the typeof company.

Sources close to the Greenbury Committee believe plans for detailed disclosure of individual directors' contracts and remuneration are about the only area where agreement will be easy. There is already a deep divide on the committee over the issue of howremuneration committees of boards should be controlled by shareholders.

The pension funds have said they want every non-executive director put up for re-election every year.

Industry representatives are looking at the idea of putting the chairman of the remuneration committee up for re-election annually, and perhaps demanding a separate pay report from the chairman.

But the Institute of Directors is against changing the present system in which all non-executives come up for re-election after a longer period, normally three years.

Sir Richard Greenbury, chairman of Marks & Spencer and of the pay committee, has sworn all the 11 members to secrecy about its deliberations.