The Greenbury Committee on top pay ended its last full meeting yesterday deeply divided over the tax treatment of executive share options.
Members backed a recommendation that profits on options should be subject to income tax, abolishing the capital gains tax treatment of approved schemes. This will meet one of the main criticisms of options by Gordon Brown, the shadow Chancellor.
But the committee failed to agree on whether income tax should be paid at the point of exercise or when the shares are subsequently sold. Members will attempt to resolve the issue over the next few days.
If income tax is levied on exercise - after a minimum of three years - it will penalise executives who want to keep some of their shares rather than cash them all immediately.
A majority favoured taxation on exercise but met vehement opposition from members who said it would set a dangerous precedent by forcing executives to pay tax on the notional profit on shares they continue to hold.
Opponents also argued that taxation on exercises would undermine the incentive to become long-term owners of shares.
Either way, a recommendation to abolish capital gains tax treatment would hit middle management harder than senior board members. The pounds 6,000 CGT annual allowance is a drop in the ocean for top earners.
As expected, the committee agreed to recommend changes in the Company's Act to allow full disclosure of every director's remuneration and of the benefits to directors and the cost to the company of pension rights.
It also agreed a code of practiceit wants the Stock Exchange to adopt in its listing rules, including an extension of the right of shareholders to approve option schemes to include other long-term incentive plans.
The code will say that if service contracts are longer than one year the reasons should be disclosed and a full explanation given to shareholders.
And remuneration committees will be told to bear in mind the relationship between executive pay rises and those of staff.Reuse content