Bonus controversy as Vallance stays at BT for two more years

SIR IAIN VALLANCE is to stay on as chairman of British Telecom for a further two years after his planned retirement date in July under a new contract that will eventually entitle him to a controversial £600,000 "terminal bonus".

SIR IAIN VALLANCE is to stay on as chairman of British Telecom for a further two years after his planned retirement date in July under a new contract that will eventually entitle him to a controversial £600,000 "terminal bonus".

Sir Iain's salary for the two-and-a-half day a week job is also to be increased from £275,000 to £325,000 a year.

News of the extended chairmanship, unanimously approved by the board earlier this week, is likely to receive a mixed reaction in the City.

Sir Iain is widely respected among investors and analysts for his transformation of BT from an inefficient domestic monopoly into one of the world's leading global telecommunications players.

However, with 12 years under his belt either as chairman and chief executive - or more recently as part-time chairman - some analysts believe it may be time for a change.

A more common view is that the partnership of Sir Iain as part-time chairman and Sir Peter Bonfield as chief executive is working relatively well, and that it would make little sense to rock the boat at this stage.

"This is not another Marks & Spencer, where Sir Richard Greenbury's continued position as chairman was plainly inappropriate," said one fund manager. "Sir Iain has been taking a back seat to Sir Peter Bonfield for some time now."

The new contract, which became available for public inspection yesterday, will end persistent speculation that Sir Iain might eventually succeed Lord Younger as chairman of Royal Bank of Scotland.

Still only 56 years of age, Sir Iain is understood to have agreed to stay on in part to help provide continuity for the group's recently formed and strategically crucial joint venture with AT&T of America, called Concert.

Under the terms of the venture, which pools the two companies' international business telecommunications interests, Sir Iain will remain chairman of Concert for the next 18 months, after which he will be succeeded by AT&T's Michael Armstrong.

It was felt inappropriate for such an important position to be held by someone who was not also chairman of BT.

Board members also took the view that it would be wrong to lose an executive of Sir Iain's standing and expertise, given the intense competition for leading talent that has developed in this fast-growing industry.

Directors have agreed to pay Sir Iain a "terminal bonus" of £600,000 if he stays in the position until July 2002. In the event that BT terminates the contract before then, or that the company is taken over, Sir Iain will receive the higher of £600,000 or the current year's on-target bonus together with the previous year's annual bonus.

The payment is bound to prompt allegations of "fat-cat" pay in some quarters, but it was defended by one telecoms consultant as "cheap at the price".

The consultant, who did not wish to be identified, said that Sir Iain could have earned "millions a year" from consultancy, advice and directorships, such is the demand for top telecommunications expertise in the United States and Europe.

Earlier this week it emerged that William Esprey, chief executive of the US long-distance carrier Sprint, would be entitled to "golden parachute" share options worth $470m (£290m) as a result of the recently agreed takeover by MCI WorldCom.

BT is expected soon to announce details of a new US-style incentive and share-option scheme for top executives after a series of top-level departures said by one insider to amount to a "brain drain".

The latest loss is James Swingewood, director of Internet and multimedia services at British Telecom.

Established telecoms players with old-fashioned pay structures are finding it increasingly difficult to compete for or retain up-and-coming talent against start-up enterprises that are offering the prospects of multi-million pound enrichment.