Downing Street last night played down the prospect of legislation directly to control the level of pay-outs, although the Prime Minister told MPs that share option bonuses should be on the basis of company performance "and not provided as windfall gains".
Senior government sources said any legislation would centre on changing the Companies Act to ensure greater disclosure of bonuses to enable shareholders to stop excesses.
The proposals, predicted by the Independent, produced a strong reaction among Tory MPs. One source said such action would be "anathema" to the Conservative Party. Michael Heseltine, the President of the Board of Trade, strongly opposed such intervention and a former minister warned it would be a "step down the road to a prices and incomes policy".
In a further development yesterday, the Commons Employment Committee ordered Cedric Brown, chief executive of British Gas, to reappear before it after he failed to mention during his evidence to the committee a shares bonus scheme that could net him an extra £600,000. The committee also decided to demand the presence of David Jeffries, the National Grid chairman, who enjoys a pay deal worth £2m.
The Prime Minister defused a renewed attack by Tony Blair, the Labour leader, by condemning as "distasteful" the million-pound bonuses paid to heads of privatised industries. He drew gasps of surprise from MPs when he said he was prepared if necessary to introduce legislation to back up the CBI inquiry headed by Sir Richard Greenbury, which is due to report in the summer. The hardening of the Prime Minister's attitude was brought about by the public outrage over bonuses for the chiefs of the privatised utilities. It was increased by the disclosure yesterday of Mr Jeffries' package. Intervening directly on pay levels would have threatened a split in the Cabinet. A former Cabinet minister said: "It is madness. They would simply take out more consultancies to get round the law."
Before making his Commons intervention, the Prime Minister's officials alerted the Treasury, the Department of Trade and Industry, and the Greenbury inquiry team.
Gordon Brown, the Shadow Chancellor, last night challenged Mr Major to take immediate action with new clauses to the Finance Bill on executive share options. He also reminded Mr Major in November that he insisted that boardroom excesses must be a "matter for their shareholders and not for the Government".
Ministers have become increasingly anxious that public anger has undermined public confidence in the Tories' privatisation policy.
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