ABI: 'Tie bonuses to performance'

The number of directors receiving bonuses which bear little or no resemblance to their company's performance is still unacceptably high, the Association of British Insurers (ABI) said, as it introduced a set of tighter guidelines for executive remuneration panels.

Peter Montagnon, the ABI's director of investment affairs, said that at the worst end of the corporate world, directors' bonuses were being increased to compensate for the fact that their share incentive plans had not paid out. "If the share incentive package hasn't paid out because of poor performance [and directors are receiving bigger bonuses to compensate], then that's really quite a serious issue," he said. "We must urge and encourage remuneration committees to exercise discipline on this."

Under its set of guidelines published yesterday, the ABI encouraged remuneration committees to put longer-term share incentive packages in place - rather than the current three years - in a bid to help realign the long-term interests of shareholders and executives.

The guidelines also warned committees away from awarding directors large pension payments when they are leaving the company, especially where they are departing due to their poor performance, or where the regular company pension scheme is seriously underfunded.

Scottish Power found itself at the heart of a controversy at the start of this year when it doubled the pension pot of its outgoing chief executive Ian Russell, in spite of having ousted him for poor performance.

The ABI said average bonuses amongst FTSE 100 directors had increased from around £600,000 to more than £1m over the past two years, while executive share option packages had risen from 1.5 times salary to more than 2 times.