A row broke out last night over new contract terms given to directors of NatWest Group. At the same time it emerged that three bank executives were sitting on paper share options profits worth in excess of £1m.
The new terms mean directors have succumbed to shareholder pressure by agreeing to reduce the notice period for the termination of their service contracts from three years to one.
But they have written into their contracts a new "golden parachute" clause, which means the notice period reverts to three years in the event of a change of control at the bank, entitling one executive to a payoff of more than £1m.
PIRC (Pensions Investment Research Consultants) - which advises pension funds on corporate governance issues - called the clause "ridiculous".
The reduction in the notice period has the effect of reducing the payoffs the directors could get if they lose their jobs.
A change of control is defined in the new contracts as an entity owning more than 30 per cent of the bank, or if a majority of directors on the board have not been at the bank for the previous two years.
The changes mean that if the directors lose their jobs following a takeover or merger they could become entitled to a payout worth three years' salary. In the case of Derek Wanless, group chief executive, who earns £350,000, the payout could reach more than £1m.
The reversion clause has run into immediate controversy. Anne Simpson, joint managing director of PIRC, said: "There are no circumstances in which three-year contracts can be justified. The directors want to have their cake and eat it.
"The changes superficially comply with best practice, but if they can invoke the old terms and conditions at will they are introducing what the Americans call golden parachutes, which is not in the shareholders' best interests."
A NatWest spokesman defended the new contract terms. He said: "We hope it would ensure the directors take into account the long-term interests of the shareholders in the event of any change of control. It is not principally to protect the financial interests of the directors."
Directors sitting on potentially big share option profits include Mr Wanless, who has paper profits of £347,000. Martin Gray, chief executive of NatWest UK, has paper profits of £472,000. The chairman, Lord Alexander of Weedon, has potential profits of £329,000. Some of the potential profits are subject to the bank meeting what a spokesman described as "stretching performance criteria".
The pay and options row emerged as ICI fuelled the war over pay by disclosing that its chief executive, Sir Ronald Hampel, was given an increase of almost 27 per cent in his total remuneration package last year, to £607,000 from £479,000. The package included a bonus of £170,000, which the company said was linked to improvements in earnings per share. The increase also reflects his promotion to chief executive.
Elsewhere, David Barnes, chief executive at Zeneca, saw his pay rise 37 per cent to £435,000. Two Zeneca directors made £500,000 profits from share options.