MEPC director left with payoff of pounds 6m

MEPC, the property giant, is expected to come under intense scrutiny from its shareholders this week after revealing that a former director has received a payoff of almost pounds 6m.

David Gruber, the former chief executive of MEPC's businesses in the United States, was paid pounds 5.2m as a bonus for successfully negotiating the sale of the company's US property portfolio. In addition, he also received pounds 769,000 in compensation for loss of office. Mr Gruber, who left the company at the end of September, was on a two-year rolling contract.

The payoff, revealed in MEPC's annual report which was posted on Friday evening, is likely to trigger some uncomfortable questions for Sir John Egan, the chairman, and chief executive James Tuckey, about the company's corporate governance procedures.

MEPC put its US portfolio up for sale in September 1997 after deciding to concentrate on its UK businesses in an attempt to reverse its flagging share price performance.

It put Mr Gruber in charge of the process and offered him a bonus linked to the amount he raised from the sale, with special rewards if he could extract a price above the book value of the properties.

The portfolio was eventually sold earlier this year for $1.3bn (pounds 774m), some pounds 50m more than book value. As a result of his success, Mr Gruber's payoff rose sharply.

A spokesman for MEPC stressed that the payout was a reward for success rather than failure: "This was a contractual arrangement at the time of the decision to sell and was related to the surplus above book value of pounds 50m," he said.

Nevertheless, shareholders are likely to be surprised at the size of the incentive and the fact that it was not capped at a particular level.

MEPC is no stranger to shareholder unrest. Eighteen months ago, dismayed by the group's flagging share price performance, investors explored the possibility of encouraging one of its rivals to mount a bid.

Mr Tuckey survived by executing a sharp change in strategy, deciding to sell off the group's US and Australian portfolios. The bulk of the Australian properties have now also been sold, although they fetched less than book value.

Despite the change in tack, however, and the decision to return a large chunk of the proceeds of the sale to shareholders, MEPC's share price has continued to head south. It recently hit a 12-month low of 373p - almost 40 per cent below its peak.

However, MEPC's directors are understood to be relaxed about the latest revelation, believing that shareholders will accept the size of the payout when the details of Mr Gruber's contract are explained to them.