Kingfisher overhauls incentive plan after slump in bonuses

Kingfisher is overhauling its incentive plan in an attempt to handcuff senior management and compensate for the lack of bonuses paid out after a tough year that saw profits at its core B&Q chain more than halve.

Europe's biggest DIY retailer has asked investors to support a new long-term incentive scheme it hopes will halt the exodus of top talent into the highly paid world of private equity. B&Q, a renowned training ground for UK retailers, recently lost its commercial director, John Cleland, to the Apax-owned Somerfield.

Kingfisher was unusual among FTSE 100 companies for not offering executives a separate long-term incentive award alongside an annual bonus. Its proposed changes follow a relatively lean year for its top bosses, with Gerry Murphy, the chief executive, getting an annual bonus of just £56,000 as opposed to £335,000 last year. The company's annual report, which was released yesterday, shows his total salary package dropped 18 per cent to £1.1m despite a slight rise in his base salary to £875,000.

Under Kingfisher's new scheme, Mr Murphy could pocket shares worth up to £1.75m - or up to 200 per cent of his base salary - on top of any bonus in the next 12 months. He would have to keep the shares for at least three years before cashing them in and would get them only if Kingfisher's total shareholder return was above the median for the FTSE 100 during that time.

The company's report states "the current structure fails to provide sufficient retention incentive for executives in consecutive years when little or no bonus is earned, as can happen in a cyclical downturn". When Mr Murphy reported the 64 per cent drop in pre-tax profit to £232m, he stressed the company's problems were not of its own making but driven by the weakest DIY market in a decade. About 200 managers will benefit from the new scheme.

Shareholders have backed the plan, which they will vote on at the group's annual meeting. One top investor said: "Long-term, performance-linked schemes provide deferred gratification, or handcuffs. This is more conventional and we support them entirely." A Kingfisher spokesman said: "The new scheme brings us into line with other FTSE 100 companies."

Ian Cheshire, who was promoted from running the group's successful international arm to head B&Q, was paid £591,000, up from £490,000, reflecting a higher base salary. The report also showed that Peter Jackson, who replaced Sir Francis Mackay as chairman, will earn £275,000 a year.

Elsewhere, in a sign of the growing unrest in the City at high bonuses, a leading pension advisory group told investors to vote against a payout to Amvescap's top management. The fund group intends to give the departing chairman Charles Brady $9m (£5m) and Martin Flanagan, the new chief executive, $11.75m in cash and 5 million shares as a signing-on fee.

Pirc, the Pension Investment Research Consultants, believes the payments are unjustified because it does not believe that directors should be "additionally rewarded for fulfilling their job description". It is also against discretionary bonuses, signing on fees and Mr Flanagan's four-year contract, and is opposing his election to the board of Amvescap.

Last year Amvescap saw an exodus of money from the funds it sells to the public. Two years ago it paid $450m to settle allegations it allowed large corporate clients to make trades that disadvantaged small investors.

Vodafone was also facing questions about its incentive scheme for top managers. It has written to the top institutional investors, laying out plans to cut the targets management needs to reach to be awarded share options.

Growth targets come down from 8-16 per cent to 5-10 per cent. Vodafone says even if the lower rates are met, the options could remain underwater depending on how investors feel about the stock.

One investor said: "There's not an industry where growth rates remain the same year on year. These things get adjusted." A spokesman for Vodafone said: "We do not anticipate a shareholder backlash."