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Railtrack heads for new fat cat row

Railtrack looked set to sail into a new controversy yesterday after it emerged that it planned to press ahead with long-term bonus schemes which could reward directors and top managers with free shares worth in excess of pounds 2m two years from now, without seeking shareholder approval.

The news comes just days the rail group faced fierce criticism from John Prescott, the Environment and Transport Secretary, over the announcement of a 27 per cent rise in annual profits to pounds 346m, and the bonus is likely to reignite the row over executive pay in the wake of the dispute between the Heritage Secretary Chris Smith and the directors of Camelot, the operators of the National Lottery.

Railtrack has rejected pressure from Pirc, the Pensions and Investments Research Consultants, to comply with the recommendations of the Greenbury Committee report in 1995 and seek fresh shareholder approval. The company argues that approval had been obtained before 1 May last year, while the government was the sole shareholder, and the requirements of the Greenbury report have therefore been met.

The long-term bonuses are not due to be paid until 1999. But they are linked to annual bonuses payable over the next three years which allow directors to pay half their annual cash bonuses into a trust which invests the proceeds in shares. The bonuses cannot exceed 40 per cent of basic salaries. After three years the directors could be entitled to five times the value of funds in the trust.

The exact value would be influenced by the performance of the shares, and also by extra payments approved by the railways regulator to reward reduced delays in railway services. The Department of Transport said yesterday Railtrack had already been awarded an extra pounds 72m for reducing train delays.

The Department of Transport confirmed yesterday that approval for the bonus schemes had been obtained before privatisation and had been mentioned in the flotation prospectus.