Top pay ruling dropped

Greenbury recommendation on disclosing directors' pensions bites the dust, reports Paul Rodgers

A KEY element of the Greenbury report on directors' pay has been dumped after the Stock Exchange and the Department of Trade and Industry pressurised the Institute and Faculty of Actuaries on behalf of listed companies.

The decision to pull a formula that would have revealed the full cost of directors' pensions from the exchange's listing guidelines was made at a meeting between the organisation's representatives two weeks ago.

The Institute and Faculty sent Peter Tomkins and Paul Thornton from their pension board to the meeting with representatives of Nigel Atkinson's listing department and un-named agents for the DTI who told the actuaries that there was a "lot of unease" among listed companies and asked them to re-consider their recommendation.

The pension board agreed to open a consultation process that would look at "smoothing" the figures over several years to hide massive increases enjoyed by some bosses.

Sources at the board, which is composed of members of the Institute and Faculty, admitted they were already under direct pressure from fellow actuaries acting for individual companies, but were not about to bow to it.

Quoted companies are now expected to launch a vigorous lobbying campaign to have the provision watered down before it is introduced in the middle of next year.

The Stock Exchange insisted it is committed to implementing the Greenbury recommendations and vehemently denied the allegation that it pressurised the actuaries into retreat. It claimed the consultation period was thought up by the board and Sir Richard Greenbury before the late October meeting. Neither Sir Richard nor the DTI would comment, and the Exchange could produce no evidence to support its rebuttal.

But in its listing guidelines, issued on Thursday, the Exchange said: "The Institute and Faculty of Actuaries has been asked to prepare a discussion paper outlining the alternative approaches." An official comment by the Institute and Faculty said that it had "agreed with the Stock Exchange and the DTI that the profession will prepare a discussion document outlining the possible methods".

The board sources said they believed their original formula would have fully implemented Greenbury's recommendation, and that anything less would be a step backward.

In section 5.19 of its report, the Greenbury committee called for annual reports to disclose "the extra value of pension entitlement earned during the year".

The existing method for calculating directors' pension contributions is to multiply their salary by the average contribution rate for all members of the plan. If the fund is in surplus, no pension details need be revealed.

But directors' pay rises tend to be far above average. And because pension benefits are calculated according to the number of years' service, there is a multiplier effect that can boost them way above the underlying salary increase. The new formula - often called the transfer value - would have taken these factors into account.

However, it had the potential to spark an even bigger wave of public outrage than that created by a round of large pay rises for the bosses of privatised industries over the last year.

On one estimate, British Gas chief executive Cedric Brown's pounds 205,000 increase, which sparked the Greenbury report, would have increased the value of his pension by more than pounds 1m, although under existing rules the company was able to post a cost of only pounds 19,000.

Peter Tompkins, chairman of the pension board's Greenbury working party, cautioned: "Any method will produce fairly large numbers and there will be a high level of public interest in next year's reporting season."