pounds 3m award for BET chief stirs up argument over payouts

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The Independent Online
Employment lawyers said yesterday that companies were unlikely to give way easily to pressure for higher compensation for executives in the wake of the pounds 3m awarded to John Clark, former chief executive of BET.

They believe shareholder campaigns to avoid payment for failure have become so vocal that boards are likely to continue to try to minimise claims and are altering employment contracts to ensure they have the power to do that.

Ian Hunter, of Bird & Bird, said the decision "probably won't mean companies will cave in."

Jane Mann of Fox Williams said companies were increasingly demanding termination clauses that allowed them to act against executives who underperformed, while executives usually fought very hard to keep the clauses out of their contracts. Such clauses would give critics inside the company or shareholders levers to use against someone they did not like.

In a typical compensation dispute, performance while holding the job is not an issue if a case comes to court, where the argument centres on contract law. Indeed, an employment contract is only usually voided by something as serious as an assault or fraud.

Mr Clark won almost all he was entitled to under his contract. It was not a result of winning a dispute about performance, because Rentokil Initial, which took over BET and fired him, never claimed he underperformed.

Instead, the argument was about the degree to which the compensation under his contract should be trimmed back by the prospect that he could find another high-earning job. The better his chances of becoming chief executive somewhere else, the less compensation the court would award him.

As it happened, the judge decided that at the age of 55 he was unlikely to get another job as good. Ms Mann, who is fighting a number of cases for chief executives, said the judge had followed the principles of employment law to the letter.

She agreed that it would be difficult for Mr Clark to find another job at the same level of seniority, and thought it would be equally difficult to take a less senior job reporting to someone else, who might feel threatened by his presence.

Another lawyer suggested that if Mr Clark did find another senior job it would considerably strengthen Rentokil Initial's hand in the appeal it has said it plans.

The pounds 3m award has confirmed the view of many lawyers that the Greenbury Committee on top pay was quite wrong in its recommendations about compensation.

Sir Richard Greenbury's committee said boards should take an executive's performance into account when setting compensation, and pay rather less if the job had been done poorly.

The court case, by underlining the point that legal arguments about compensation do not usually revolve around performance at all, showed that directors are unlikely to have the power to behave as Greenbury suggested.

Ms Mann said "Greenbury ignored the fact that where a contract is breached an individual has a legal right to compensation. It is not a discretionary matter.'' No matter how badly an executive performs, a breach of contract is a breach of contract.

Very few executive compensation cases come to court and most are argued out between lawyers.